Mudajaya -BUY; FV: RM3.72

Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD

Research House: OSK

Price Call: BUY

Target Price: 3.72

During our recent conversation with Mudajaya following therelease of its 4QFY11 results, management said works at Chhattisgarh arelargely on track for all 4 units to be completed by 3Q 2013. On the domesticfront, jobs  may continue to  flow with upcoming potential contracts suchas civil works for the 1,400MW Prai power plant, Kinrara-DamansaraExpressway  (RM1.5bn-RM2bn), LRT depot inPutra Heights  (RM400m), as well asaerobridges at KLIA2 and the Petronas Solar Farm in Kuantan worth RM100meach.  We continue to likeMudajaya's  relatively attractivevaluation, strong contract wins  YTD, andpotential  to nail  more contracts. Maintain BUY, at a revised FVof RM3.72, based on SOP valuation.

Sturdy RM4.0bnorderbook. Mudajaya's orderbook totals a stellar RM4.0bn, of which RM1.0bnworth of jobs was secured this year after the company clinched the civil works portionof the proposed Tg Bin power plant extension. The jobs on hand include  the RM2.0bn remaining works at its 26%-ownedChhattisgarh power plant in India, RM600m in outstanding civil works at theManjung power plant's extension and some small contracts totaling RM60m.Following a meeting with management, we took a look at the progress of itsIndia venture as well as potential jobs flow in the near term.     

Progress in India.Mudajaya embarked on its maiden venture in India's power sector in July2005  by taking  up  a26% stake in RKM Powergen, the special purpose vehicle (SPV)  undertaking a 4X360MW coal-fired IPP  projectworth RM5bn in Chhattisgarh, India. The SPV inked a Power Purchase Agreement(PPA) with the Chhattisgarh State Electricity Board and Power Trading Corp ofIndia to supply power at a pre-fixed tariff, subject to fuel and interest costspass-through. Subsequently, Mudajaya's 80%-owned subsidiary, MIPPInternational, was awarded the engineering and procurement contract for all the4 units. Progress has been fairly encouraging so far, with the first unitlikely to commence operation by the end of this year, while the rest will go onstream on  a staggered basis every 3months thereafter. Despite some delays earlier due to issues relating to theresettlement of villages and floods, works have been restored and the company'sprogress remains largely on track. 

IPP contribution tokick in from 2013. Assuming no further delays, we expect earnings from itspower venture to commence progressively by early 2013, with full year impactlikely to kick in by 2014. Assuming an EBITDA margin of 50%, RKM Powergen wouldgenerate core earnings of some RM600m-RM900m p.a. The underlying differenceslie in the effective tax rate (first 10 years of operation is tax-exempt), targetedaccelerated depreciation in the early years, as well as the market tariff rate uponexpiry of the PPA, which we assume to be INR4.5/kWH vis-''-vis the contracted INR2.3-3/kWHrate

Source: OSK188