Analysts upbeat on Mudajaya prospects

Analysts upbeat on Mudajaya prospects
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The involvement of Mudajaya and Zelan in power plants augurs well for their future performance

Ng Ying Loong: Mudajaya's financial performance this year is expected to be driven mainly by local projects
CONSTRUCTION outfit Mudajaya Group Bhd's share price has jumped a whopping 214% since the beginning of this year, propelled mainly by its burgeoning order book and overseas prospects.

As at June, the company had total outstanding projects valued at about RM2.6bil, which should last another three to four years.

It has submitted bids for RM1.7bil worth of projects under the Ninth Malaysia Plan and has said that it is targeting infrastructure projects in the Middle East.

The company said it had identified several potential overseas jobs involving the construction of power plants, water treatment facilities, roads and industrial complexes.

At its AGM last month, managing director Ng Ying Loong said the company expected this year's financial performance to be driven mainly by local projects while overseas projects would contribute substantially starting next year.

Currently, Mudajaya's overseas activities are concentrated in India, where it has established a joint venture with a local firm to build, operate and own a 1,400 MW power plant. The entire deal is worth some RM1.43bil.

The plant is expected to be completed earliest by 2010, after which the group will sell electricity in India.

This will provide it with a long-term income stream.

“We are upbeat on the prospects of Mudajaya and are expecting further upside from the Indian project, which will provide a much stronger upside for its 2008 financial year earnings,” a local brokerage said.

“Things would be much rosier once the plant is in operations,” it added.

Furthermore, Mudajaya also has property business, focused in Sarawak. The company started developing the Batu Kawah township near Kuching city centre 10 years ago. The project has a gross development value of RM1.2bil, with an estimated completion date in 2015.

According to reports, the project currently contributes about RM70mil in sales annually.

Mudajaya's Batu Kawah township project has a gross development value of RM1.2bil and is expected to be competed in 2015
Mudajaya recorded results that were within analysts’ expectations for its first quarter ended March 31. It posted a 19% growth in revenue to RM56.5mil from RM47.5mil in the same quarter last year. Margin increased year on year from 13.2% to 15.1%.

On the whole, the company has performed quite consistently over the years. “Historically, the numbers don’t look bad. For a company of this size (its market capitalisation as at last Friday was RM676.19mil), it is doing well,” an analyst told StarBiz.

He said Mudajaya's prospects looked “promising.” “The company's independent power producer (IPP) project in India certainly bodes well for its future,” the analyst added.

Chang Si Fock
Another company which is aiming for a slice of the IPP pie is Zelan Bhd.

“From a mere construction player, we have become a full-fledged engineering, procurement and commissioning (EPC) player,” group chief executive officer Chang Si Fock once told StarBiz.

Of late, the company has indicated that it wants to be an IPP, apart from being involved in EPC works.

“Our target is that within this year we must start having ownership in IPPs,” Chang told reporters in May.

To this end, Zelan has said that it was targeting to finalise an IPP deal in the current fiscal year ending Jan 31, 2008.

It is in talks with IPPs in India, Indonesia and the Middle East for this purpose. Zelan is looking for opportunities in these countries as it is already actively involved in building power plants there.

This will provide the company with a recurring stream of income, minimising any cyclical effects the firm may suffer from its other business segments in case of downturns.

Zelan has four divisions, namely engineering and construction, IPP and investment, manufacturing and trading, and property development.

In the company's latest annual report, it said it foresaw promising growth opportunities in the power area based on the forecast power demands in Asia.

The report noted that statistics from the International Energy Agency indicated that electricity demand from 2004 to 2030 was forecast to grow fastest in India and China while the Middle East would see above-average demand.

Additionally, it said, India, Indonesia and the Middle East would need to spend about US$26bil yearly over the next 25 years in power plant projects.

Model of the Hampshire Residences project by Zelan Corp Sdn Bhd
As such, the group has reason to be optimistic in increasing its order book.

With all this in the pipeline, the company expects recurring income from the IPP segment to contribute about 40% of its net profit in 2010 and beyond.

For its EPC projects, Zelan has an order book of about RM4.7bil and has submitted bids worth RM10bil. The management has indicated that it was confident in securing the bids, although no specific targets were given.

Meanwhile, the company also has plans to boost its property business, with plans for development in Bangkok and India as well as locally.

On Friday, Zelan's shares closed flat at RM12 after touching a high of RM12.30. Year-to-date, Zelan shares have put on more than 100%.