KUCHING: Mudajaya Group Bhd’s (Mudajaya) long-term prospects look very exciting as contribution from its four power plants, once fired up will provide steady revenue for the company in the future.
OSK Research Sdn Bhd (OSK Research) in its investment strategy for 2010 highlighted that Mudajaya’s Independent Power Producer (IPP) venture began with the acquisition of 26 per cent equity interest in RKM Powergen (RKM), which was undertaking a 4X360 Megawatt (MW) coal fired IPP project in Chhattisgarh, India.
It noted that the Power Purchase Agreement (PPA) for Phase One and Two has both been signed together with a coal concession. It observed that financial closure for the remaining debt portion of Phase Two should be finalised soon.
Meanwhile, Unit One of the power plant is projected to be fired up by the end of 2011 and all four units will be fully operational by the end of 2012.
Following a company visit, OSK Research said earnings contribution from electricity sales will be more than RM100 million annually based on its 26 per cent stake. At the same time, the company will also receive a boost for the engineering and procurement (EP) contract for the IPP venture totalling RM3.4 billion.
Phase One was valued at RM762 million while Phase Two valued at RM2.64 billion. In fact, the research firm observed that orders and down payments have been made for all the key power plant components for instance, boilers, generators and turbines at fixed prices.
Traditionally, gross margins were forecasted at more than 20 per cent. Therefore, OSK Research believed that the EP contract to be Mudajaya’s key earnings driver for financial year 2010 and 2011.
On the other hand, Mudajaya had received its investment licence in Vietnam which enabled it to conduct construction works there.
The research firm observed that Mudajaya had recently secured a smaller project in Vietnam and is exploring more projects. It pointed out that Mudajaya is looking for some building type of projects in Saudi Arabia.
On the local front, it believed that Mudajaya has a good participating chance in the Light Rail Transit (LRT) extension project, which is currently at the prequalification tender stage, given its previous sub-contracting role with the existing line.
OSK Research was also optimistic on Mudajaya’s plan to participate in the track transit system linking the Kuala Lumpur International Airport (KLIA) to the newly proposed Low Cost Carrier Terminal (LCCT).
It observed that Mudajaya was the contractor for the current track transit at KLIA.
Hence, OSK Research upgraded Mudajaya’s earnings as it offered a three-year compound annual growth rate (CAGR) forecast of 70.5 per cent.
Mudajaya’s return-on-equity (ROE) is the highest within the sector coverage by OSK Research, which stood at 29.8 per cent. The research firm stated that another strength of the company is its healthy net cash position.
It said Mudajaya’s financial year 2010 and 2011 price earnings ratio (PER) of eight times and five times were very undemanding considering its strong fundamentals.
Thus, OSK Research pegged the shares of Mudajaya with a target price of RM6.15 per share based on 13 times financial year 2010 earnings forecast.