MUDAJYA (5085) - Mudajaya Group - Raising the red flag for FY14
Target RM1.26 (Stock Rating: REDUCE)
Mudajaya posted a core net loss in FY14 vs. our and consensus' projected net profit forecasts. A major provision (c.RM200m) relating to cost overruns for a domestic power plant job took us by surprise in 4Q. FY14’s operating stats of depleting domestic orders, shrinking tender book, declining construction margins, and further delays in the India IPP venture suggest a more challenging earnings outlook from FY15, and are now potential de-rating catalysts. While other new regional IPP ventures may be positives, they are not sizeable enough to make an impact. We cut our FY15-16 EPS forecasts and target price, still based on a 40% RNAV discount. Downgrade to Reduce from Hold. Switch to Muhibbah Engineering, our preferred small/mid-cap pick.
FY14 below expectations
Mudajaya reported an FY14 net loss of RM71m vs. our and consensus' net profit forecasts. We had not expected the group to book the sizeable c.RM200m in provisions for cost overruns relating to the RM720m Janamanjung power plant extension project, which was completed with outstanding variation order (VO) claims. The stable performance of other divisions which only made up 28% of the group’s pretax profit was insufficient to offset construction's weak numbers. The 32% yoy decline in revenue was in line with its falling order book, while the 6 sen full-year DPS was below our forecast of 9 sen.
Earnings risks re-emerging
We are turning more cautious on the earnings outlook in view of 1) depleting domestic orders, 2) shrinking tender book, 3) declining construction margins, and 4) the delayed India IPP cash flows. We cut our new job assumptions by 40-50% to RM500m to RM1bn p.a. to reflect the group's more selective stance in bidding, and impute thinner construction pretax margin assumptions of 4-5%, from 8-9% previously, due to delays in higher-margin new power plants and selective highway projects.
India IPP faces further delays and logistics risks
New updates on the Indian IPP venture suggest that the commercial operation date (COD) for Unit 1 (360 MW) has now been delayed by about three months to mid-2015. Land acquisition issues for the spur rail line to transport coal supply was another negative surprise and may cause further delays. We now forecast a base-case group net profit of RM49m for FY15.
Source: CIMB Daybreak - 02 March 2015
Target RM1.26 (Stock Rating: REDUCE)
Mudajaya posted a core net loss in FY14 vs. our and consensus' projected net profit forecasts. A major provision (c.RM200m) relating to cost overruns for a domestic power plant job took us by surprise in 4Q. FY14’s operating stats of depleting domestic orders, shrinking tender book, declining construction margins, and further delays in the India IPP venture suggest a more challenging earnings outlook from FY15, and are now potential de-rating catalysts. While other new regional IPP ventures may be positives, they are not sizeable enough to make an impact. We cut our FY15-16 EPS forecasts and target price, still based on a 40% RNAV discount. Downgrade to Reduce from Hold. Switch to Muhibbah Engineering, our preferred small/mid-cap pick.
FY14 below expectations
Mudajaya reported an FY14 net loss of RM71m vs. our and consensus' net profit forecasts. We had not expected the group to book the sizeable c.RM200m in provisions for cost overruns relating to the RM720m Janamanjung power plant extension project, which was completed with outstanding variation order (VO) claims. The stable performance of other divisions which only made up 28% of the group’s pretax profit was insufficient to offset construction's weak numbers. The 32% yoy decline in revenue was in line with its falling order book, while the 6 sen full-year DPS was below our forecast of 9 sen.
Earnings risks re-emerging
We are turning more cautious on the earnings outlook in view of 1) depleting domestic orders, 2) shrinking tender book, 3) declining construction margins, and 4) the delayed India IPP cash flows. We cut our new job assumptions by 40-50% to RM500m to RM1bn p.a. to reflect the group's more selective stance in bidding, and impute thinner construction pretax margin assumptions of 4-5%, from 8-9% previously, due to delays in higher-margin new power plants and selective highway projects.
India IPP faces further delays and logistics risks
New updates on the Indian IPP venture suggest that the commercial operation date (COD) for Unit 1 (360 MW) has now been delayed by about three months to mid-2015. Land acquisition issues for the spur rail line to transport coal supply was another negative surprise and may cause further delays. We now forecast a base-case group net profit of RM49m for FY15.
Source: CIMB Daybreak - 02 March 2015
