• Maintain BUY; upside to forecasts and target price. Our meeting with Mudajaya left us feeling even more upbeat on the group’s prospects. The slight delay in the Indian IPP should be overshadowed by the even more favourable outlook for project flows, both locally and abroad. The award of the Manjung EPCC contract to Alstom reinforces Mudajaya’s chances of bagging the civil works and should be a precursor to more project awards in the next few months. We expect positive developments in the group’s bid for BOT highways and a new power plant in India to add to the momentum of positive newsflow. The RM1bn target for new contracts in 2011 is likely to be exceeded. We maintain our EPS forecasts, BUY call and target price of RM7.94, pegged to an unchanged 20% RNAV discount. The award of projects holds the key to share price re-rating.
• Janamanjung a significant milestone. We expect the Janamanjung civil works to be the group’s first contract award for 2011, adding to the group’s portfolio of power plant construction projects after many years. The award would be the first civil works to be undertaken for the supercritical category and the first coal-fired power plant project to be implemented under the 10MP.
• Better things to come. The Janamanjung plant extension is likely to be a precursor to a slew of new projects for Mudajaya. We also do not discount the possibility of the group’s participation in the WCE and one of the remaining six highways.
• On course for contract wins in 2011. Mudajaya’s outstanding order book stands at RM4.8bn. We remain optimistic about the group’s chances of beating its RM1bn target for new projects in 2011. Success in clinching an estimated RM3.1bn worth
of orders this year would bump up the group’s order book to almost RM8bn, higher than IJM’s RM4bn and Gamuda’s RM5.5bn.
Outlook
Award is a matter of time. Mudajaya is likely to take up the role as a committed subcontractor for the civil works, estimated to be worth between RM700m and RM1bn. Civil works for coal-fired power plants typically account for 20% of total development cost and kick off the building of a power plant. Civil works for the Janamanjung extension are expected to start soon, which suggests that the civil works portion could be awarded in a matter of weeks. The civil works portion should come from the RM1.8bn portion of the total RM5.1bn development cost. We understand that the RM1.8bn is mainly for local content. Negotiations on pricing and project scope are at the final stages.
Janamanjung civil works a sign of better things to come. We continue to expect the award of the civil works for the Manjung power plant extension to be a precursor to a slew of contracts, mainly local, for Mudajaya. We also do not discount the possibility of the group’s participation in the WCE and one of the remaining six highways as these projects are likely to be dished out in packages and are part of the Klang Valley Outer Ring road that will link KLKS, WCE and SKVE among others. Construction of the Kuala Lumpur-Kuala Selangor (KLKS) Highway will be completed by Jun 11, which suggests that the group has ample capacity to take on new infrastructure/highway projects.
Potential Projects
Janamanjung plant extension
Value: RM700mil
Verdict: Good chance against other local players
Tanjung Bin plant extension
Value: RM700mil
Verdict: Good chance against other local players
West Coast Expressway (WCE)
Value: RM1000mil
Verdict: Has the capacity to take on another highway job
MRT civil works
Value: RM500mil
Verdict: Fits prequalification criteria
LRT phase 2
Value: RM200mil
Verdict: Potential stations work and precast segment
Good chance of clinching Tanjung Bin extension too. Tenders for the 1000MW extension of the Tanjung Bin coal-fired power plant closed on 30 Mar 11. Compared to the Janamanjung project which is a Tenaga project, the Tanjung Bin power plant comes under Malakoff which is an IPP. Alstom is also among the bidders for the EPCC scope. However, for this job, Mudajaya is part of the consortium. The contract is expected to be awarded in Sep 11 and the potential size of the civil works is similar to the Janamanjung extension. Management remains optimistic about its chances as a civil contractor.
Vying for a piece of WCE. The recent approval of the West Coast Highway (WCE) is positive for the implementation of the seven new highways planned under 10MP. We gather that although the work scope will go largely to the main contractor, about 30% of the total project value of RM5bn-6bn will be dished out to other contractors. As the contractor for the KL-Kuala Selangor highway located near the proposed alignment of the WCE, Mudajaya is targeting c.RM500m worth of works from WCE. Project details are still scanty at this point. We expect more details of the WCE to be released in the months ahead.
Contender for Ampang elevated highway 2. We gather that the Ampang elevated highway 2 will be an extension of the current Ampang elevated highway and is also one of the key urban highways planned under the 10MP. The fully elevated highway project will be undertaken by Prolintas and is valued at RM2bn-3bn based on a cost/km of RM80m-100m. Mudajaya’s expertise in elevated highway jobs should give it an advantage in the tenders. An example would be the elevated portion of the Shah Alam-Kemuning Highway (LKSA) which was built by Mudajaya. LKSA is owned by Prolintas too.
Temporary setback for Indian power plant. Over the past six months, the Indian IPP project has been plagued by slight holdups caused by land compensation demands by villagers and bad weather conditions. The compensation issues relate to pricing issues among the villagers who demanded better prices for their land. This was a negative surprise but should not be a big concern as alternative measures have been taken such as the building of additional basic infrastructure around the area.
This, however, affected the delivery schedule for the power plant equipment. This also explains the small revenue contribution from the EP works over the past two quarters. Management clarified that these issues have been largely resolved. On the positive side, management is in negotiations to secure the last power purchase agreement (PPA) for the last unit of the 1,440MW Chhattisgarh power plant. Indications are that the tariff would be as high as Rs4.59/kwh, three times the rate in Malaysia.
Bidding for highways in India and a potential new power plant. In a 70:30 JV with a local partner, the group has submitted a bid for a 93km BOT highway project worth around RM900m in India. The scope of works includes the extension and widening of the highway to six lanes. The highway is part of the Chennai-Bangalore trunk road and will be a 12-18 year concession. 80% of the land will be provided by the government. Another potential highway is the 100km Bangalore-Bombay stretch for which the group has submitted its prequalification bid. On the power plant side, Mudajaya’s associate RKM Powergen has been invited to participate in the development of a 2100MW coal-fired power plant to be located near Chhattisgarh. This project is still at the stage of preliminary studies.
