Mudajaya (HLIB)

Price Target: RM6.75

Share price: RM4.56

Highlights:

 We visited Mudajaya’s management last week and returned on a positive note especially on their local prospects.

 The management reiterated that the land issue for the India IPP has been resolved and common infrastructure works for the plant has rebounded in pace. At the current rate, Phase 1 (360MW) is scheduled for completion by 2H12, with commercial operations within 3Q12, which is a few months delay from the originally planned timeline. Phase 2, which consists of 3x360MW, will be commercially ready by 3Q13.

 The management has also stated that they have been shipping the plant equipment from China, whereby some will be stored at the forwarder’s warehouse and some at the power plant site itself. Hence, we believe that 2Q and 3Q numbers will come in stronger on a QoQ and YoY basis. As for 4Q, we believe there could be seasonal weaknesses due to the monsoon season, unless equipment installation works are carried out during that period.

 On the local front, the management explained that the RM720m Letter of Intent for Janamanjung was issued first as Mudajaya has already started mobilisation works. It should be a matter of formality before the contract becomes “official”.

 As for the Tanjung Bin power plant, Mudajaya is part of the Alstom consortium and we understand that they are given the “exclusivity” to bid for the contract. The contract size at minimum should be the same as Janamaunjung’s RM720m, and this will bring their total active outstanding order book to RM3.5bn, translating to 4x FY10’s revenue. The contract is expected to be awarded by September.

 Recognising that power plant contracts are limited, the management is also looking forward to winning infrastructure projects especially for the MRT elevated track works and some packages of the West Coast Expressway which is worth ~RM500m each. We believe that these orders could come in next year.

Risks:

 Delay in completing the IPP project which will have a huge impact on our earnings forecasts; regulatory and political risks (both domestic and overseas); rising raw material prices; and unexpected downturn in the construction sector.

Forecasts:

 Unchanged.

Rating:

 Maintain BUY as we believe that the company will be able to successfully replenish their local order book and the setback

in India IPP project is temporary.

Valuation:

 Target Price of RM6.75 based on Sum-Of-Parts valuation

maintained