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Friday, October 8, 2010

Some thoughts on Mudajaya after SC's letter

Reply to Moolah's post on Mudajaya:

"Investment of associates should be the IPP project in India :) The money earned from the construction of the project is plowed back into the IPP project as part of its 26% equity stake commitment. So, can't really say there's no wealth creation as Mudajaya is bound to reap its harvest from India once the IPP starts operation. The question is whether the earnings from IPP could justify the RM871 million being plowed into the IPP project. Mudajaya will be putting another RM671 million over the next two years into investment of associates. That will equal about RM80 mil per quarter.

As for valuation of Mudajaya, I will not put its construction earnings from IPP together with its 26% stake in IPP like what is done by CIMB. Instead, valuation should only include its 26% stake in IPP and exclude its earnings from IPP construction as construction profits are channeled back to the IPP anyway. By excluding IPP construction earnings, its earnings should be halved, probably about RM140-160m p.a. in 2011-12.

Simple valuation: RM1800m (Construction earnings PER 12x) + RM800m 26% stake in IPP + RM30m properties. Work out to be RM6.40 per share. Hope this helps :)"

Looking closer at Mudajaya's financial statements, its earnings are not really that meaningful (except for other projects other than IPP projects). However, the way they present their earnings were misleading to investors. This episode has also caused a dent in investors' confidence towards this company and will be hard for the company to shake off its "fraudulent company' image among investors.

Price weakness to continue??

Any constructive comments on Mudajaya? Appreciate it!

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2 comments:

  1. It is all about good or bad management.the real n main problem with malaysian companies in bursa is its ethical values,politically connected directors n a very bad press.yes,malaysian mainstream media
    are fools 100%.worst,nobody in the financial world really cares about fraudsters,crooks,cheaters etc coz malaysian retail investors are actually speculators.mudajaya is like sime darby,kenmark n many others.blame it on the press,folks!

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  2. Like you, I'm also a strong follower of Paramount.In fact, it now represents about 1/3 of my portfolio.
    Definitely will break RM5 very soon if not today.Any announcements of special dividend together with bonus issue and/or share split will nudge it easily to RM6, IMHO.

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