Mudajaya Group Bhd
(Dec 1, RM1.78)
Ceasing coverage with a hold call and a last target price of RM1.83: Third quarter of financial 2014 (3QFY14) revenue came in at RM209 million (-47% year-on-year [y-o-y], -25% quarter-on-quarter [q-o-q]) and core earnings at only RM1 million (-97% y-o-y, -67% q-o-q). First nine months of FY14 (9MFY14) core earnings were only RM29 million (-77% y-o-y), which were below expectations.

Mudajaya’s 3QFY14 results were much worse than the already bad 2QFY14 results, as the construction, manufacturing, trading and property operations remained weak.

The construction division booked RM1.5 million in pre-tax profit in 3QFY14 (vs RM60,000 in 2QFY14) but continued to incur higher costs to accelerate works. The power division recorded a marginally higher pre-tax profit after the solar energy plant in Gebeng commenced operation of the additional 5mw capacity.

We are ceasing coverage of the stock as we do not see any major catalyst ahead.

Year-to-date wins have been paltry at RM375 million from the Wind Energy Farm in Cebu. The company also failed to secure new contracts in FY13 and 1HFY14. In its results announcement, the company said it is pursuing variation orders and claims for some projects, and that the first unit of its power plant at Chhattisgarh, India will commence operation in 1QFY15.

We use the sum-of-parts method to value Mudajaya and apply a 10 times multiple to its construction business and a discounted cash flow-based valuation to value its three independent power plants. — AllianceDBS Research, Dec 1

This article first appeared in The Edge Financial Daily, on December 2, 2014.