MUDAJYA (5085) : Mudajaya Group - Low success rate in 2014
Target RM1.92 (Stock Rating: HOLD)
Mudajaya's annualised 9M14 core net profit was 19% above our full-year forecast and comprised 92% of consensus. Core net profit exceeded our estimate as we overestimated MI. Construction EBIT margin collapsed to 6% in 9M14 (15% 9M13) due to depleting jobs and unrealised claims, which look likely to persist due to the low success rate for job wins YTD. We raise FY14 EPS by 19% but slash FY15-16 by 15-23% to reflect the prolonged recovery in earnings prospects, as well as the maiden cash flow from the Indian IPP in FY15. Despite our rollover to end-2015, our target price declines, still pegged to a 40% RNAV discount. Weaker visibility in the timing of job wins, in spite of the steep fall in share price, supports our Hold call. Switch to Gamuda.
Depleting order book filtering through
Annualised 9M14 core net profit was 19% above our full-year forecast but comprised 92% of consensus. The results were above our forecast as we overestimated MI. Operationally, 9M14 results showed weakening in construction EBIT margin from 15% in 9M13 to 6% in 9M14 (see Figure 1), reflecting the depleting jobs YTD. The absence of dividends was expected.
No big wins YTD
We remain concerned about Mudajaya’s weak job awards success rate in 2014 but this would be partly offset by the group's relatively unchanged total tender book of c.RM5bn (jobs in tender). Management's target of c.RM1bn total domestic order wins in 2Q-4Q14 looks unlikely to be achieved, suggesting possible delays in major job awards from 1H15 to 2H15. We expect construction margin to remain under pressure in the next new quarters, only supported by the depleting c.RM1bn outstanding order book and unrealised variation order (VO) claims for the Janamanjung and Tanjung Bin power plant extension projects. These factors underpin the cuts in our FY15-16 EPS,
Delayed catalysts
Mudajaya’s share price has arguably factored in delay risks but we believe that it will take more time for sentiment to recover. Major ongoing tenders for Mudajaya include: 1) subcontract works for Rapid's co-generation power plant: RM100m-200m, 2) civil works for Track 4A and 4B: c.RM1.2bn, and 3) Kinrara Damansara Expressway (Kidex): RM2.2bn. Further delays in the awarding of these jobs are likely to be offset by the group's Indian IPP contribution in 1H15.
Source: CIMB Daybreak - 01 December 2014
Target RM1.92 (Stock Rating: HOLD)
Mudajaya's annualised 9M14 core net profit was 19% above our full-year forecast and comprised 92% of consensus. Core net profit exceeded our estimate as we overestimated MI. Construction EBIT margin collapsed to 6% in 9M14 (15% 9M13) due to depleting jobs and unrealised claims, which look likely to persist due to the low success rate for job wins YTD. We raise FY14 EPS by 19% but slash FY15-16 by 15-23% to reflect the prolonged recovery in earnings prospects, as well as the maiden cash flow from the Indian IPP in FY15. Despite our rollover to end-2015, our target price declines, still pegged to a 40% RNAV discount. Weaker visibility in the timing of job wins, in spite of the steep fall in share price, supports our Hold call. Switch to Gamuda.
Depleting order book filtering through
Annualised 9M14 core net profit was 19% above our full-year forecast but comprised 92% of consensus. The results were above our forecast as we overestimated MI. Operationally, 9M14 results showed weakening in construction EBIT margin from 15% in 9M13 to 6% in 9M14 (see Figure 1), reflecting the depleting jobs YTD. The absence of dividends was expected.
No big wins YTD
We remain concerned about Mudajaya’s weak job awards success rate in 2014 but this would be partly offset by the group's relatively unchanged total tender book of c.RM5bn (jobs in tender). Management's target of c.RM1bn total domestic order wins in 2Q-4Q14 looks unlikely to be achieved, suggesting possible delays in major job awards from 1H15 to 2H15. We expect construction margin to remain under pressure in the next new quarters, only supported by the depleting c.RM1bn outstanding order book and unrealised variation order (VO) claims for the Janamanjung and Tanjung Bin power plant extension projects. These factors underpin the cuts in our FY15-16 EPS,
Delayed catalysts
Mudajaya’s share price has arguably factored in delay risks but we believe that it will take more time for sentiment to recover. Major ongoing tenders for Mudajaya include: 1) subcontract works for Rapid's co-generation power plant: RM100m-200m, 2) civil works for Track 4A and 4B: c.RM1.2bn, and 3) Kinrara Damansara Expressway (Kidex): RM2.2bn. Further delays in the awarding of these jobs are likely to be offset by the group's Indian IPP contribution in 1H15.
Source: CIMB Daybreak - 01 December 2014
