Maintain Buy with higher RM3.45 target price.
Results highlights
- Broadly in line; maintain BUY. Mudajaya''s FY11 core net profit was broadly in line, at 96% of our forecast and 95% of consensus. Though slightly lower than expected, overall EBIT margin was a commendable 22%, driven mainly by the Indian IPP EP works. This job has crossed the 30% milestone and should accelerate this year. Prospects on the local scene have turned around, going by the award of the RM1bn civil works for the Tanjung Bin power plant extension, which could be followed by more power plant and highway jobs. We maintain our FY12-13 forecasts and our trading-oriented Buy recommendation. Updating the balance sheet items, we nudge up our target price from RM3.43 to RM3.45, still pegged to a 40% discount to RNAV. Project awards remain the key catalyst.
- Margin contraction was due to job depletion. FY11 revenue jumped 55% yoy, driven mainly by EP works for the Indian IPP and Janamanjung extension. The EP works stand at over 30% physical progress and accounted for c.50% of FY11 revenue. EBITDA margin contracted 10 % pts yoy to 22%, lower than our forecast of 25%. The contraction was due to the completion of higher-margin jobs i.e. the KLKS highway which dented construction margin by 11% pts to 22% in FY11. Nevertheless, it should pick as work on the Indian IPP progresses. Overall core net profit advanced by 7%, boosted by lower tax rates. The group declared a final single-tier DPS of 2.5 sen, bringing full-year DPS to 8 sen, which was no surprise.
- Tanjung Bin civil works awarded. The group announced the award of the 1,000MW extension of Tanjung Bin coal-fired power plant worth RM1bn. This bumps up Mudajaya''s order book by 24% to an all-time high of RM5.2bn. We believe that it stands a good chance of securing more power plant and highway jobs. This is backed by additional extensions of coal-fired facility and new gas-fired IPPs, and new highways under 10MP. The Tanjung Bin contract forms part of our unchanged RM1.5bn total new contract assumption for 2012.
Award of Tanjung Bin civil worksTanjung Bin EPCC signed. The much-awaited award of the Tanjung Bin civil works was announced yesterday. Mudajaya which is part of the consortium comprising Alstom Power Systems SA, Alstom Services Sdn Bhd, and Shin Eversendai signed an EPCC agreement for the 1000MW extension. Mudajaya's role is to undertake the overall civil and structural works valued at RM1bn. We understand that the equipment and procurement will be done by Alstom while steel supply and fabrication will be undertaken by Eversendai. Total development cost including the civil works is around RM5bn, as reported by the press. The extension will increase Tanjung Bin's power generating capacity from 2,100MW to 3,100MW.
Order book jumps to all-time high. For Mudajaya, we expect lucrative pretax margins of 10-15%, which is the benchmark for power plant construction in the past. The extension of the Tanjung Bin power plant is scheduled to be completed in four years but the civil works is targeted to complete a year earlier. This job should contribute RM30m-50m p.a. to net profit assuming pretax margins of 10-15%. This project bumps up Mudajaya's outstanding order book by 24% to an all-time high of RM5.2bn, of which 33% is made up of domestic power plant jobs. This award is positive for the group as it reinforces its position as the major beneficiary of the rollout of power plants in the country.
More power plant potential. We contacted management and were encouraged to learn that the visibility of contract awards over the next 12 months has improved, thanks to the rollout of more power plant and highway projects. We gather that the Energy Commission plans another 1,000MW extension of coal-fired facility which largely elevated. Opportunities in MRT and other projects. Mudajaya is among the 14 listed contractors that have prequalified for elevated, stations and depot works for the MRT SBK line. The group is bidding for the third 5km elevated stretch near Damansara with a potential value of RM800-1bn. Some remaining work for KLIA 2 is still up for tender. The group has been shortlisted for the aerobridge package worth around RM80m- 100m. It has formed a JV with another undisclosed local company. Another potential project is Petronas's Solar Farm. Through a consortium made of the group and a French company, Mudajaya is bidding for the EPCC works for the 10-13MW facility. The cost is still unknown but indications are that the benchmark cost/MW for a solar facility is around US$3m-4m. could either be implemented at the existing Janamanjung or Jimah power plants. Mudajaya stands a good chance of clinching it as the group is undertaking the civil works for the Janamanjung extension. We understand that the Janamanjung facility has ample space for an additional 1,000MW extension as it sits on 254ha of reclaimed
land, of which only 70ha has been utilised. An additional 1,000MW extension, would almost double capacity from 2,100MW to 4,100MW.
Prequalification round for gas-fired power plant. The Energy Commission also has plans for 4,500MW of gas-fired power plants. Mudajaya, through a consortium with a Chinese party, recently submitted prequalification documents for the 1,000-1,200MW gas-fired power plant in Prai. This is part of the Energy Commission's call for tenders for new generation IPPs as the existing IPPs will expire in 2016. Mudajaya could be taking a 51% stake in the consortium. The winning party will also own an IPP concession, which would be a double positive for Mudajaya if it succeeded as the group could clinch its maiden domestic IPP as well as undertake the estimated RM1bn worth of EPCC works. We understand that there are a number of interested parties, which will be shortlisted before the calling of tenders.
Capacity for highway jobs. The group also has capacity to take on highway jobs.
The recently approved RM7.1bn West Coast Highway (WCE) remains on the group's radar. It is targeting one or two subcontracting packages worth RM400m-500m each. The award is likely to come in the later part of the year, pending the signing of the concession agreement (CA) and the award of the main contracts to IJM Corp and KEuro. Recent news reports also highlighted that Mudajaya is among the seven companies which were invited to bid for the proposed Kinrara-Damansara Expressway (KIDEX). There are limited details on the tender and award timelines but we understand that the project value could be around RM1bn as the highway is largely elevated.
Opportunities in MRT and other projects. Mudajaya is among the 14 listed contractors that have prequalified for elevated, stations and depot works for the MRT SBK line. The group is bidding for the third 5km elevated stretch near Damansara with a potential value of RM800-1bn. Some remaining work for KLIA 2 is still up for tender. The group has been shortlisted for the aerobridge package worth around RM80m-100m. It has formed a JV with another undisclosed local company. Another potential project is Petronas's Solar Farm. Through a consortium made of the group and a French company, Mudajaya is bidding for the EPCC works for the 10-13MW facility. The cost is still unknown but indications are that the benchmark cost/MW for a solar facility is around US$3m-4m.
Potential jobsRM7.1bn West Coast Highway (WCE) : 1 or 2 subcontract packages worth RM400-500m each
MRT SBK line : Elevated/guideway package, 5km, bidding next month
KLIA 2 : Aerobridge package, shorlisted though a JV company
1,000-1,200MW Gas-fired power plant in Prai : Value is around RM1bn, prequalification submitted
1000MW extension of Janamanjung or Jimah power plant : At least RM800m in value
RecommendationMaintain Buy with higher RM3.45 target price. We see potential catalysts for the stock, emanating from the implementation of major jobs under the ETP, 10MP and the rollout of power plant projects. This reaffirms our Buy recommendation which is more trading oriented, in line with our Trading Buy call on the construction sector. Prospects on the local scene have turned around, going by the award of the RM1bn
civil works for the Tanjung Bin power plant extension, which could be followed by more power plant and highway jobs. We maintain our FY12-13 forecasts and our trading-oriented Buy recommendation. Updating the balance sheet items, we nudge up our target price from RM3.43 to RM3.45, still pegged to a 40% discount to RNAV. Project awards remain the key catalyst.
