MUDAJYA (5085) - Mudajaya Group Berhad - Will emerge as best share of 2017
Mudajaya Group Berhad, a well known construction and power stock had suffered tremendous non-cash losses in the past three quarters owing to non-cash depreciation and borrowing costs expensed to profit or loss.
Many investors had shunned this counter due to countless uncertainties involved. Recently, the counter had a string of positive news that propelled the share price up from RM0.70 to RM1.10. Question remains, does this rally has legs?
Let us assess the uncertainties factored in the share price and how has the uncertainties been addressed in recent days:
Uncertainties
1. Mudajaya's India coal-fired power plant, located in suburban area of Uttar Pradesh, has failed to live up to the management's promise year over year due to delays.
2. Declining orderbook (until December 2016) had cause a over-sell down of the share, since early 2016.
3. Increased financial losses
How are the uncertainties addressed?
1. The main reason for the continued delays and financial losses was due to difficulties in dealing with Uttar Pradesh Power Corporation government officials (Due to government officials being corrupted). RKM Powergen could not start firing the power plant due to corruption required to be given to government officials, in which Mudajaya refused.
Until recently, Uttar Pradesh had an election in which CM Yogi Adityanath pledged to provide 24 hours power supply to Uttar Pradesh area. This was one of Yogi's main manefesto and he has succeeded in delivering his promise. He has since vowed to clean up corrupted officials in Uttar Pradesh Power Corporation. This had lead to RKM Powergen being able to start firing its coal-fired power plant recently.
Perform a Google search on Uttar Pradesh Power or Yogi Adityanath and you will see how the recently elected CM Yogi Adiyanatah has pledged to revive the power industry in Uttar Pradesh.
2. Declining orderbook until December 2016 and continued non-cash financial losses has led to investors shunning the share. RAM Rating had downgraded the loan of the company due to this matter.
However, the company had recently, in quick succession, won contracts worth a total of RM2billion, which propelled its orderbook to a high of RM2.5billion. The company also has an outstanding tenderbook of between RM3bil to RM5bil.
Mudajaya had also successfully refinanced its loan and debts. The ability of the company being able to refinance its debt prove that the financing bank has confidence in the ability in Mudajaya to repay the loan and debts.
3. As Mudajaya can no longer capitalise depreciation and borrowing costs from from RKM Powergen's unit 1 and unit 2 power plant, these expenses have been expensed to profit and loss, as non cash expenses.
These non cash expenses will reduce the company's retained earnings, thus the ability of the company to pay out future dividends.
However, as unit 1 of RKM Powergen has commenced sales, only unit 2's depreciation and borrowing cost will be expensed to profit and loss from the second quarter of 2017 onwards.
What is the outlook of Mudajaya and where does the company go from here on?
With the newly elected ironfirst CM Yogi (Comrade and loyal party chief of India's Prime Minister - Narenda Modi) in power in Uttar Pradesh, Mudajaya's outlook is very bright and promising, as the company no longer need to suffer from the pains of corrupt power officials in Uttar Pradesh.
The company has also recently mandate a share-buy-back of its own company shares. A close check on Mudajaya's share-buy-back history shows that the company always commence this mandate prior to the company's share price rally.
Despite that, the first quarter 2017 will continue to show financial losses as RKM powergen's sales only started in April 2017.
Thereafter, Mudajaya will start to record profits.
A simple calculation of a conservative earnings for 2017 of RM140million with a PriceEarnings ratio of 12, the company is worth a conservative RM3.12.
Foreign investment bank analysts had already started coverage with Buy calls with target price range between RM2.30 to RM2.81 (Despite local investment banks issuing Sell calls).
Thereafter, profits will continue to increase in 2018 due to fully operational India power plant, thanks to the newly elected ironfist Uttar Pradesh CM, Yogi Adityanah, who prioritise power supply in suburban region of Uttar Pradesh in his manefesto over all other issues in Uttar Pradesh.
MUDAJYA (5085) - Mudajaya Group Berhad - Will emerge as best share of 2017
http://klse.i3investor.com/blogs/Professorneil/121354.jsp
