Analyst downgrades Mudajaya on lack of new projects

PETALING JAYA: Mudajaya Group Bhd, which is expected to release its second quarter results on Aug 26, will continue to record earnings downtrend due to lack of new projects and slower-than-expected revenue recognition in certain jobs.
"FY14 is expected to be a washout year, but the management is still hopeful of bagging new jobs by end of the year," PublicInvest Research said.
"We however lower our new jobs assumption to RM500 million from RM1 billion, and believe the new jobs secured, if any, will not contribute meaningfully in the near term," ," its analyst Tan Siang Hing said in a report yesterday.
He pointed out that Mudajaya's job replenishment has been disappointing with no meaningful job secured since 2013.
"The need to replenish order book has become critical to ensure earnings recovery.
"We believe that albeit the potential huge tender book from new projects such as the new power plants (Track 3A & 3B, valued at about RM3 billion), RAPID power plant in Pengerang, Johor (about RM4-5 billion), etc, the slower-than-expected tender award would mean Mudajaya's earnings will continue to be under pressure with current outstanding jobs of around RM1 billion," Tan said.
Also, he added that, slower-than-expected revenue recognition from current jobs would also put a dent on Mudajaya's earnings.
"All told, we revised our new jobs replenishment to RM500m (from RM1 billion) and adjusted the revenue recognition assumptions. Consequently, we lowered our FY14-15 earnings by 20% to 25% to reflect these changes," he said.
Tan said the saving grace for Mudajaya's earnings cliff will come from the projected commercial operation date for its first unit of its 4x360MW coal-fired power plant in India.
"We understand that after few delays, the first unit is expected to be fired up by end-2014 and the remaining three units by mid-2015.
Located in the state of Chhattisgarh, Ucchpinda power station - a coal-fired 1,440 megawatt plant - is being constructed by RKM Powergen Private Ltd. RKM Powergen is a 26%-owned associate of Mudajaya Group. The controlling 74% stake is owned by India-based RK Powergen Pvt Ltd.
"Mudajaya is expecting about RM70-80 million recurring income from this power plant alone (which has 25 years concession)," he said.
Separately, Tan noted that Adani Power in India acquired a 1,200 MW coal plant in the southwest of India from Lanco Infratech recently, spurring consolidation talk of the country's troubled energy sector which is hit by shortages of coal supply and project delays.
"Interestingly, we note that even at somewhat distressed price of US$1 billionn/0.83m per MW (vis-à-vis .US$1.5m/MW market value), Mudajaya's 26% stake in the 1440 MW power plant is estimated to be worth about RM980 million already in our estimates," Tan said.
PublicInvest downgraded Mudajaya to neutral from outperform after adjusting its target price to RM2.55 from RM3.10 previously.
"Earnings are expected to languish near term and potential catalysts such as commercialization of its Indian power plant and new jobs will only happen towards end-2014.
Hence, we believe the stock price might struggle to gain traction until Mudajaya starts to deliver both on job execution and replenishment," Tan concluded.