Delays don’t dim prospects
Mudajaya's annualised 1H13 core net profit made up 84% of our and 99% of consensus full-year forecasts. Although 2H will be stronger, the results were below our expectations due to progress billing delays. Still, a recovery in earnings and prospects should follow the FY13 slump.
We cut our FY13-15 EPS to reflect job delays and lower IPP associate earnings due to the weakening rupee. The lower target price is still based on a 40% discount to a revised RNAV. Job outlook in the domestic power plant space remains positive and underpins job wins in 2H. Maintain Outperform, with added catalysts from the FSA for its Indian IPP, likely in 4Q13. Share price weakness is a buying opportunity.
Timing and delay issues
Mudajaya’s annualised 1H13 core net profit made up 84% of our and 99% of consensus full-year numbers. It was below our forecast as we had overestimated progress billings for MRT, which saw the impact of technical-related delays in the last two quarters. MRT profits were minimal with current pretax margins running at below c.4%. The 2% pt decline in construction EBIT margin in 1H13 was also due to the shipment/logistic issues for the EP works of the India power plant. The 14.2% group EBITDA margin will at best sustain in 2H. Our earlier forecast implies that 2H13 EPS will grow by 38%, which, by management's new guidance, is not achievable. The 2nd interim single-tier DPS was in line.
Order book drivers
The outstanding order book of RM1.8bn mainly comprises power plant jobs (42%), and MRT (33%). Order book visibility continues to be good, and should be anchored by the targeted projects valued at between RM500m and RM1bn. 2H could be driven by c.RM700m-800m worth of power plant contracts.
India FSA signing in 2H
Although there could be downside to power associate earnings from FY14 due to the weakening rupee, management is optimistic about the signing of the fuel supply agreement (FSA) before end-2013. This continues to be stock’s key catalyst for its India venture.
Publish date: 30/08/13