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Tuesday, September 10, 2013

CIMB Research sees more upside for Mudajaya


KUALA LUMPUR: CIMB Equities Research expects the overhang on the stock to gradually diminish after its 26%-associate RKM Powergen, secured coal supply for its Indian independent power producer (IPP).

“This is positive news and locks in associate power’s earnings from 2014 on. Maintain Outperform,” it said, as it raised the target price from RM3.02 to RM3.24.

CIMB Research rolled over valuations to end-2014 and applied a higher 15.9 times price-to-earnings (15.6 times previously) in its revised net asset value valuation, in line with its revised target market P/E. Our target price rises but remains pegged to a 40% RNAV discount.

“We anticipate a strong re-rating as past delays in the signing of coal supply have been a major investor concern. This news, the signing of coal supply for phase 2 and job wins are catalysts in H2,” it said.

To recap, RKM Powergen has signed a coal supply agreement with South Eastern Coalfields Ltd. This is for the supply of coal for phase one (1x360MW) of the 4x360MW coal-fired thermal power plant in Ucchpinda, Chhattisgarh, India.

The 20-year supply contract is extendable. RKM will purchase 1.7 million tonnes of coal per annum from the supplier at US$25 a tonne. This will be domestic coal (Grade F) with a gross calorific value of 3,300-3600Kcal/kg.

“We are positive about the progress made in securing coal supply. This should allay investor concerns triggered by numerous delays in the signing of coal supply since last year,” it said.

CIMB Research said indications are that the signing of the coal supply contract for phase 2 (units 2-4, 3x360MW) will be in two to three weeks’ time.

“We expect phase 2 to begin testing and commissioning in 1H14 and start selling power from 2H14 onwards,” it said.

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