HLIB Research maintains Buy on Mudajaya, cuts target price to RM3.35

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KUALA LUMPUR (Feb 19): Hong Leong Investment Bank Research (HLIB) has maintained its “buy” rating on Mudajaya Group Berhad after trimming 17% of its target price to RM3.53 from RM4.27 based on standard operating procedure valuation.

In a note Tuesday, it said Mudajaya’s quarter-on-quarter (q-o-q) revenue dropped by 14% due to lower progress in India’s index of industrial production (IIP) engineering and procurement (EP) contract.

“This is due to the reduction in the EP contract size, originally worth US$937 million” said the research house.

HLIB noted that despite the setback in earnings, it believes that the completion of the India IIP project remains as the key to unlock the company’s valuation.

The delay in the completion of the India IIP project is due to regulatory and political risks for both abroad and local parties. The rise of raw material prices and the unexpected downturn in the construction sector is also a factor to the delay along with the depreciation of the Indian Rupee and US dollar.

Mudajaya’s 2012 fourth quarter results (4QFY12) profit after tax and minority interest (PATAMI) rose up by 3% to RM237.1 million, making up 96% of its earnings estimation.

“Although its fourth quarter operating margins are still healthy, it has been compressed by 16% from 19% in the third quarter due to lower margins from local projects. As a result, its quarter-on-quarter earnings dropped 15%”, it said.

In a note Tuesday, the research house said, “despite the poor second half performance, its financial year 2012 results managed to grow by 3% due to strong earnings growth in its first half”.

The research house has reduced its FY13-14 earnings by 19.2% and 15.1% respectively in their forecast to better reflect timing in profit recognition of its projects and lowered India IPP EP contract size.

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