Mitrajaya Holdings Bhd
(July 18, 48 sen)
Maintain hold with an unchanged target price (TP) of 53 sen: Mitrajaya Holdings Bhd has only managed to secure one new contract worth RM103 million year to date (YTD). Its order book now stands at about RM1.5 billion, translating into 1.5 times cover on financial year 2017 (FY17) construction revenue. Going forward, we expect competition for private-sector jobs to intensify as other contractors start bidding more aggressively within this space due to a reduction in government spending on public infrastructure. For the property division, its unbilled sales of RM176 million (1.2 times cover ratio) should provide a buffer over the next two years. We maintain our forecasts and “hold” call, with an unchanged TP of 53 sen. Our TP is pegged at seven times mid-FY19 earnings. The domestic construction industry landscape is expected to remain challenging, and we do not expect a significant improvement in the near term. Nonetheless, Mitrajaya’s reasonable order book balance and unbilled sales will enable it to ride through this short-term turbulence.
Mitrajaya has bid for RM3 billion worth of jobs comprising mostly building works (RM2.9 billion) and the balance infrastructure project. Management is targeting to secure another RM900 million worth of jobs for FY18. However, we maintain our order book replenishment assumption of RM250 million given the limited job wins YTD and slowdown in contract flows following the change in government.
Following the change in government post 14th general election, we have turned cautious about the overall macro job flow outlook for the construction sector. The high-speed rail and mass rapid transit Line 3 have been shelved, while terms of the East Coast Rail Link are being renegotiated and the light rail transit Line 3 has been downsized due to a review of megaprojects. As a result, about RM105 billion worth of local content of megaprojects will be removed over the next two years based on our estimation. Although Mitrajaya has been less involved in public infrastructure jobs relative to private-sector jobs in the past, we reckon that competition for private-sector jobs will intensify going forward as other contractors start bidding more aggressively within this space.
Mitrajaya is not spared from the weak property market as its Phase 3 Wangsa Residency development has only managed to achieve a 5% take-up rate since its soft launch in February 2018 and a mere 41% take-up rate for its 280 Park Homes development. In efforts to boost take-up rates, management is actively tapping the overseas market and undertaking creative strategy such as a rent-to-own scheme for its 280 Park Homes development. Nonetheless, we draw comfort in its overall unbilled sales of RM176 million, which imply a healthy cover of 1.2 times FY17 property revenue. — Hong Leong Investment Bank Research, July 18