Mudajaya clinching more Rapid jobs

Mudajaya Group Bhd (Dec 28, RM1.14)

Maintain hold with unchanged target price of RM1.14: Mudajaya announced that it was awarded a RM220 million contract from Petronas for the construction of warehouses and workshops at its refinery and petrochemical integrated development project (Rapid).

The job is scheduled for completion by January 2018 (25 months).

With this contract in the bag, the company’s year-to-date job wins amount to RM753 million.

Since December 2014, Mudajaya has managed to secure RM809 million worth of works at Rapid.

We estimate that this would bring its order book to RM1.6 billion, implying a cover ratio of 1.9 times on financial year 2014 (FY14) construction revenue.

While this multiple is still below most of its peers, it is certainly a lauded recovery from its cover ratio of only 1.1 times as of end second quarter (2Q) 2015.

After three consecutive quarters of losses due to cost overruns, Mudajaya finally returned to the black in the third quarter ended Sept 30, 2015 (3QFY15). It also managed to recover some of its costs that were previously expensed off. We take this as a positive sign.

Although year-to-date job wins of RM753 million have surpassed our FY15 order-book replenishment target of RM300 million, we are in no hurry to raise our earnings forecast as its annual job wins tend to be rather lumpy and inconsistent.

There is also downside risk to earnings should its Chhattisgarh Independent Power Producer (IPP) fail to commence according to the postulated timeline.

We continue to project a break-even year for FY15 which hinges heavily on the profits in the second half (2H) to offset losses in 1H.

Whilst the turnaround in 3Q is an encouraging sign and job wins are starting to flow, we are not ready to advocate a buy rating yet until we see more consistency in its earnings turnaround.

Further delays in the commencement of its Chhattisgarh IPP is another downside risk to our projected earnings. — Hong Leong IB Research, Dec 23

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This article first appeared in The Edge Financial Daily, on Dec 29, 2015. Subscribe to The Edge Financial Daily here.