Mudajaya's expertise is also in power plants
KUALA LUMPUR: CIMB Equities Research sees signs of order book recovery for Mudajaya Group but not net profit recovery as yet after it accepted a RM810mil road construction project on Penang island.
The infrastructure company had accepted a letter of award from Consortium Zenith BUCG for package 2 of Penang major roads and Third Link project. The package involves road alignment from Ayer Itam to Lebuhraya Tun Dr Lim Chong Eu bypass. The construction period is three years after site possession in 1H17F.
Details from Zenith–BUCG’s website reveal that this RM810mil road project (RM162m/km) is one of three new traffic dispersal road schemes to be implemented on Penang Island.
This appears to be part of the overall Penang Transport Master Plan (PTMP) undertaken by Zenith-BUCG consortium. Another component under the purview of Zenith-BUCG is the Penang undersea tunnel. The package awarded to Mudajaya is a 5km 4-lane dual carriageway (non-tolled) that is likely to be mainly elevated.
CIMB Research said the new contract has increased its order book by 61% to RM2.1bn while the project pretax margins are 6%-8% at the minimum due to the elevated scope of works, and new construction profit is RM15mil to RM20m per annum.
However, as site possession will only take place in 1H17F, full-year impact would only be felt in FY18F onwards. Also, considering the RM31mil construction losses on top of the RM112mil associate losses in 9M16, thisnew Penang contract, although sizeable, would not fully offset the overall losses.
“In the medium term, Mudajaya is tendering for an MRT package, new government building jobs, potential new domestic solar farm venture and is reviving its power plant tenders, while pursuing variation order (VO) claims on selected contracts.
“We retain our RM1bil new job assumption for FY16F (which now has been exceeded) and RM800mil per annum for FY17-18F.
“This contract win is clearly another big milestone for Mudajaya this year. However, our key concerns continue to be the prolonged construction and associate losses.
“We maintain net loss forecast for FY16F and believe there are downside risks to our net profit estimates for FY17-18F due to delay risks for the Indian IPP. Our target price remains pegged to a 60% RNAV discount in view of the weak earnings outlook. Any upside to share price is an opportunity to take profit. Risk is faster earnings turnaround,” said CIMB Research.
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