Mudajya- profit margin continued to slide

Results Update

For QE30/6/2012, Mudajya's net profit declined 19% q-o-q but remained unchanged y-o-y at RM60 million while revenue increased 27% q-o-q or 57% y-o-y to RM559 million. The drop in the bottom-line on the back of higher revenue was due to more local jobs secured which are generally of lower profit margin.


Table 1: Mudajya's last 8 quarterly results


Chart 1: Mudajya's last 15 quarterly results

Valuation

Mudajya (closed at RM2.73 yesterday) is now trading at a PE of 5.3 times (based on last 4 quarters' EPS of 52.48 sen). While this PE multiple is undemanding, the continued slide in profit margin is a concern.

The catalyst for re-rating of this stock could be the finalization of the coal supply agreement between Coal India Ltd to the 26%-owned associate, RKM Pwergen- an IPP with four 360-MW coal-fired plants in Raigarh, Chhattisgarh, India. Some research houses viewed the recent poer blackout in India as the spark which could see an early conclusion of the negotiation on coal supply.

Technical Outlook

Mudajya is stuck in between its long-term downtrend line (with resistance at RM2.850 and its intermediate uptrend line (with support at RM2.60). Mudajya should hold above the strong horizontal support at RM2.65 for the near term.


Chart 2: Mudajya's weekly chart as at Aug 27, 2012 (Source: Quickcharts)

Conclusion

Based on reasonably good financial performance & valuation, Mudajya remained a good stock for medium-term investment. If it can break above the long-term downtrend line at RM2.85, we may see a more exciting time for this stock.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Mudajya.