MudaJaya ... Jan12

CIMB Research

Investment highlights
• Maintain BUY despite lower target price. Mudajaya’s 49% share price plunge last year due to concerns over the delay of its Indian IPP and surprise changes at the helm presents a good opportunity to ride on the rollout of major projects under the ETP and 10MP in 2012. But upside could be fairly limited because of macro fears. We make no changes to our forecasts or BUY call but raise our RNAV discount from 30% to 40% as we downgrade the construction sector from Overweight to Trading Buy. Our target price goes down from RM4.81 to RM3.43. The main potential re-rating catalyst is contract wins.

• Trend towards large-scale jobs. For the construction sector, we expect project flows to be more active. Key large-scale projects that are scheduled for award in 1H12 are the RM6bn West Coast Expressway (WCE), c.RM1bn extension of the New Pantai Expressway (NPE) and the RM700m-800m civil works for the extension of the Tanjung Bin coal-fired power plant. We also expect initial packages for the RM7bn railway double tracking project from Gemas to Johor Bahru. These jobs aside, the major excitement is likely to relate to the award of the MRT SBK line. Of the 28 contractors in the running for the elevated, stations and depot works, 14 are listed companies.

• Focus on local jobs. Mudajaya’s strategy for 2012 focuses on local jobs and the execution of its Indian IPP. Management indicated that the pending award of the RM700m-800m civil works for the Tanjung Bin extension should boost its local jobs wins to over RM1bn. Mudajaya is among the 14 contractors that have prequalified for the MRT SBK line. It is also looking at precast opportunities for the elevated portion. Management is vying for a share of the RM6bn WCE subcontract works as the group has ample capacity to take on another major highway job after the completion of the KLKS Highway.

Recommendation
Maintain BUY despite lower target price. Mudajaya’s 49% share price plunge last year due to concerns over the delay of its Indian IPP and surprise changes at the helm presents a good opportunity to ride on the rollout of major projects under the ETP and 10MP in 2012. But upside could be fairly limited because of macro fears. We make no changes to our forecasts but highlight that our BUY call is now more trading oriented. We raise our RNAV discount from 30% to 40% as we downgrade the construction sector from Overweight to Trading Buy. Our target price goes down from RM4.81 to RM3.43. The main potential re-rating catalyst is contract wins.