Mudajaya (BUY) - Over reaction on coal issue?

Mudajaya (BUY)

Over reaction on coal issue?

• News report that Coal India (CIL) has agreed to sign a revised Fuel Supply Agreement (FSA) with power producers. This is positive for Mudajaya’s (MDJ) Letter of Assurance (LoA) for coal supply which will now be converted into FSA, indicating assured supply.
• We believe that the India Government will prioritise distribution of coal supply for power producers as electricity is a basic necessity after water, food and shelter and also for the country’s development.
• We feel that the kneejerk reaction on MDJ’s share price has overshot on the downside. Our base case valuation for the company works out to RM2.87.
• With the company’s local operations still fundamentally sound, we maintain our BUY call on MDJ but with a lower revised TP of RM4.27.

Source: Hong Leong Investment Bank Research - 19 April 2012