Shares of Mudajaya Group Bhd slumped yesterday after a news report suggesting it was being probed by the Securities Commission (SC) spooked investors.
Trading in its shares was suspended for an hour from 9am, during which the construction company clarified that it was not directly queried by the SC. It resumed trading at RM5.88 and fell to an intra-day low of RM5.57 before the midday break. The stock closed 19 sen or 3.2% lower at RM5.69 on a volume of 2.79 million shares.
The selldown in Mudajaya followed a news report last Saturday that the SC was looking into the company’s affairs, after the regulator received a complaint from an undisclosed party.
Yesterday, Mudajaya announced to Bursa Malaysia Securities that it was neither aware of the nature of complaint, nor its source.
“The board of Mudajaya assures that the company operations are done in accordance with all statutory requirements and comply with all listing regulations. The company is more than willing to extend its full cooperation to the SC, if queried,” it said.
Yesterday, the SC told The Edge Financial Daily that it was indeed looking into the affairs of Mudajaya.
“We have got the complaint and we are looking into it at the moment. We cannot reveal the nature of the complaint. We would take necessary actions if any breach of laws are found,” a spokesperson for the SC said.
Mudajaya managing director Ng Ying Loong could not be reached for comment on the matter.
Market speculation had it that the complaint may have stemmed from the company’s independent power producing project in India, where it is also in the midst of building a coal-fired power plant.
Some analysts have also observed that Mudajaya’s profit margins are exceptionally high compared to industry standards, and its much bigger peers.
For the first quarter ended March 31, 2010, the company’s pre-tax profit surged over fourfold to RM59.02 million on the back of revenue totalling RM211.76 million. Its pre-tax profit margin was 27.9%, compared with 15.7% a year earlier. In 2009, its full-year pre-tax profit margin was 23%.
In contrast, market leaders such as Gamuda Bhd had a pre-tax profit margin of 17.9% for its third quarter ended April 30, 2010. Construction giant IJM Corp Bhd posted a pre-tax profit margin of 18.8% for the fourth quarter ended March 31, 2010, and a full-year pre-tax profit margin of 14.4%.
Nonetheless, Mudajaya has its fair share of backers among the analyst fraternity.
“In my opinion, the rumours could have stemmed by certain parties (with an axe to grind) and is not substantiated,” said an analyst with a local investment bank who tracks the stock closely.
Last week, Mudajaya’s shares rallied to as high as RM5.94 following speculation that there could be a change in a substantial shareholding in the company.
This followed market rumours that substantial shareholder Mulpha Infrastructure Holdings Sdn Bhd may be looking to sell its 21.45% stake. Tanjong plc and MMC Corp Bhd’s power unit Malakoff Corp Bhd was said to be eyeing the stake in Mudajaya.
Tanjong and Mulpha have denied the speculation.
Meanwhile, CIMB Research maintained its buy call with a target price of RM7.94 and said the dip in Mudajaya’s price was good buying opportunity for investors.
“The share price did well last week but may pull back as a result of this news. This could be a buying opportunity given the potential share price catalysts of contract awards, swifter-than-expected progress of the ultra mega power plant (UMPP) project in India and positive earnings surprises,” it said.
OSK Research also recommended a buy with a target price of RM7.33, as it deemed the investigation would not lead to anything material.
“We continue to like Mudajaya’s sound fundamentals, such as its strong earnings growth with a forecast three-year CAGR (compound annual growth rate) of 37%, sizeable order book balance of RM5.2 billion, above-industry profit margins and superior forward ROE (return on equity) of 30% to 40%, net cash position and lucrative recurring income over the mid term,” it said yesterday.
It also noted that the investigation could be spurred by the stock’s strong price gain of 15.3% due to the speculation of a new substantial shareholder.
An analyst said Mudajaya’s “fundamentally cheap” price-to-earnings valuation could be behind the speculation on the potential entry of a new shareholder.
“Furthermore, the IPPs may seek synergies from Mudajaya, with a common ground in the power sector. They could also diversify into construction, trading and quarries,” the analyst said.
This article appeared in The Edge Financial Daily, July 27, 2010.
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