MUDAJYA ... Oct2011

Mudajaya - CIMB Research Report

Investment highlights
• MD’s departure not a big worry. The resignation of Mudajaya’s MD Ng Ying Loong caught us by surprise. Although it may trigger concerns due to its sudden nature, we see no reason to view it negatively. While we are disappointed that there had been no warning, Mr Ng’s departure is for personal reasons and there is no hint of conflicts at the management level or issues with the strategic direction of the group. Management remains optimistic that the changes at the helm do not affect its ability to clinch projects under the 10MP and ETP. We make no changes to our forecasts or BUY call but raise our RNAV discount from 20% to 30% in view of the short-term concerns that this change in leadership is likely to stir. Our target price goes down from RM5.50 to RM4.81. The main potential re-rating catalyst is contract wins.

• Transition completed. Ng’s role will taken over by Anto Joseph who we view as equally credible. We gather from management that the transition started in Apr 11 when Anto Joseph took on the role of joint MD. Over the years, Anto and Ng charted the group’s growth strategy and led the group through its various ventures including its Indian IPP. Dato’ Yusli Mohd Yusoff, former CEO of Bursa Malaysia, will take on the role of chairman, replacing Asgari Mohd Fuad Stephens who will be a board member.

• Outlook remains positive. Locally, the group’s outlook remains positive. Management remains optimistic that despite the changes at the helm, it is wellpositioned to benefit from projects under the 10MP and Economic Transformation Programme (ETP). It is already one of the main beneficiaries of power plant
extension projects, having recently won a RM720m contract for the civil works of the extension of the Janamanjung power plant. It is one of the frontrunners for the extension of the Tanjung Bin power plant. The potential for order book replenishment remains healthy, suggesting upside to the group’s current outstanding order book of RM4.8bn.

Recent developments
Mudajaya announced yesterday that its MD Ng Ying Loong, aged 57, has tendered his resignation, citing family commitments as the main reason. This will take effect on 30 Sep 11. His role will be assumed by current joint MD Anto Joseph, who has been with the group for 18 years. Ng will continue to play a key role as advisor to the board.

Key takeaways from the group’s press statement:
“The change is a good move for the group and it is with great faith that I pass on my responsibilities to Anto who will undoubtedly embrace this role with great ease and propel us forwards in meeting our financial targets.” Ng Ying Loong said in a press statement. “This is also not the final chapter for me in Mudajaya. With my significant shareholding in the company and my new advisory role, I intend to actively participate
in our business but now from a difference perspective.”

Anto, aged 59, is a professional engineer who has been with the group since 1993. He held various posts including executive director since 1996. He holds a Bachelor of Technology, Civil (First Class) from the Indian Institute of Technology and is a member of the Board of Engineers, Malaysia and a Chartered Engineer. “The key strategic thrusts in place that include enhancing our presence in the power sector via
projects like the Manjung power plant and tapping opportunities in regional markets like India. I am certain we will continue to deliver a strong performance by leveraging on the group’s strength and solid management team to maximise shareholders’ value.” Anto said.

Mudajaya also announced that Dato’ Yusli Mohd Yusoff, former CEO of Bursa Malaysia, will take on the role of chairman, replacing Asgari Mohd Fuad Stephens who will be a board member. “The group is on stable footing and we have been recording solid performances in recent quarters. I am confident that with Anto at the helm coupled with Dato’ Yusli’s experience, Mudajaya can indeed look forward to stronger days ahead.” Asgari said.

Outlook
The resignation took us by surprise. Although this news may trigger concerns, we see no reason to view this development negatively. His departure is said to be for personal reasons and there is no hint of conflicts at the management level or issues with the strategic direction of the group. Ng remains the major shareholder through Dataran Sentral, which holds a 24.3% stake. From our conversation with management, we
gather that the transition started in Apr 11 when Anto Joseph took on the role of joint MD. Over the years, Anto and Ng charted the group’s growth strategy and led the group through its various ventures including its Indian IPP.

Locally, the group’s outlook remains positive. Management remains optimistic that despite the changes at the helm, it is well-positioned to benefit from projects under the 10MP and Economic Transformation Programme (ETP). It is already one of the main beneficiaries of power plant extension projects, having recently won a RM720m contract for the civil works of the extension of the Janamanjung power plant. It is one of the frontrunners for the extension of the Tanjung Bin power plant. The potential for order book replenishment remains healthy, suggesting upside to the group’s current outstanding order book of RM4.8bn.

Recommendation
Maintain BUY with lower RM4.81 target price. The resignation of Mudajaya’s MD Ng Ying Loong caught us by surprise. Although it may trigger concerns due to its sudden nature, we see no reason to view it negatively. While we are disappointed that there had been no warning, Mr Ng’s departure is for personal reasons and there is no hint of conflicts at the management level or issues with the strategic direction of the
group. Management remains optimistic that the changes at the helm do not affect its ability to clinch projects under the 10MP and ETP. We make no changes to our forecasts or BUY call but raise our RNAV discount from 20% to 30% in view of the short-term concerns that this change in leadership is likely to stir. Our target price goes down from RM5.50 to RM4.81. The main potential re-rating catalyst is contract wins.