Recent price weakness saw Mudajaya's stock price beaten down to a multiyear low of RM0.945, or more than 50% discount to its book value and c.33% below our target price. Despite the steep discount, we believe the stock is still lacking catalysts with the first unit of Indian power plant again missed deadline, depleting construction orderbook with no meaningful job clinched YTD and no signs of earnings recovery. Additionally, gearing has also increased from net cash in FY13 to net debt of 0.3x or c.RM428m of gross debt in FY14, which is not alarming as yet but still a worrying trend. As for earnings, we believe the group will struggle to be profitable this year given that the power plant is not operational yet but we keep our earnings estimates for now pending the 2Q results release estimated on Friday, August 28.

No meaningful job clinched. Mudajaya has not snagged any meaningful job for almost two years now and as at 1QFY15, the orderbook is already depleted to c.RM900m level. Despite the huge tenderbook of c.RM8bn, primarily from the power industry (e.g. Tracks 3B & 4A, Pengerang, etc) worth c.RM1.5bn and highways such as DASH and SUKE, the timing of the award is still uncertain. Hence, we believe earnings will continue to be under pressure near term. As for the write-downs, we understand that the c.RM200m provided should be sufficient for now and there's no further allowance required.

Indian Power Plant. We now believe that the commissioning of unit 1 will take longer than expected and hence, contribution for this year will likely to be minimal even if it's fired up. That said, we understand that unit 1 has been physically completed and the delay is due to longer than expected approvals from the state authorities. Recall that the Group is targeting to fire up least two units by end-2015 and the remaining by early 2016.

Maintain Neutral but lower our TP to RM1.10 (from RM1.40 previously) with a higher discount of c.50% to its NTA. With no catalysts in sight and continued disappoints in completing its power plant, we believe that the Group is not out of the woods yet and will struggle to be profitable this year due lack of new jobs and depleting orderbook.

Source: PublicInvest Research - 13 Aug 2015