Mudajaya - Company of Steel?

The construction sector has taken a severe blow since early 2008 falling for about 41% since the peak in January this year because of sub-prime mortgage crisis scare in the US. The peak of the construction index in January this year was at about 330 points and today it is at 192 points. It has retraced to about 70% from the up trend rally which started in January 2006 to the peak in early January this year. Yes, the bull rally in the construction industry was for about two years and the index in January 2006 was at about 127 points.

Many stocks share prices in the construction industry have also declined at least 40% since early this year or retraced at least 70% from the early 2006 bull rally. One stock that is still holding in its price is Mudajaya Group (Mudajaya). Mudajaya is an investment holding company with subsidiaries engaged in civil engineering and construction, property development, and manufacturing and trading of construction materials.

Mudajaya’s share price peak was on the 22nd of June 2007 at RM1.99 (adjusted because of share split in 1st of July 2008). Today the share price closed at RM1.25. That’s a RM0.74 or 37% decline. From the bull rally in the year 2006 to the peak in June 2007, the price has retraced 50%. Unlike other construction related counters traded in the exchange (which mostly have retraced 70%), Mudajaya’s share price held well.

Technically, the share price was steady above the long term 200-day moving average until February this year. The 200-day moving average is currently at RM1.44. Since August last year, the price was in a consolidation phase, correcting from the bull rally with a trading range between RM1.20 and RM1.65. Momentum indicators are indicating that the price is being controlled by the bear. The weekly MACD and RSI are making new lows. Weekly indication is used because there is too much noise in the daily chart. This normally happens in stocks that are not actively traded.

Yesterday, international broker Standard and Poors have issued a “strong buy” call, a report that you can get from Bursa Malaysia’s CBRS scheme available at their website for free. The recommendation was made because of strong order book value from various construction projects. Earlier in June this year, local stock broker CIMB raised its target price because the company has secured a highway project worth almost RM1billion and outstanding construction orderbook.

The experts seem to believe that this company of steel is able to stand in the bear pressure faced in the construction industry. Chartwise, the market seems to think otherwise (with the bearish trend forming and bearish momentum). It is up to you to decide as for me, I am following what the market says, as always.

Commentary and Analysis by Benny Lee