Mitrajaya Holdings Bhd
(Jan 29, RM1.16) 
Maintain overweight with a target price (TP) of RM1.97: Mitrajaya Holdings was awarded a RM229.9 million affordable housing contract by Putrajaya Holdings Sdn Bhd. The contract involves the construction of three blocks of 20-storey (1,062 units) apartments in Precinct 5, Putrajaya. The contract duration is for three years and is expected to be completed by February 2018. This contract win is within our expectations (that is within the RM200 million to RM250 million range).

Including this recent contract, we estimate Mitrajaya’s order book to currently stand at RM1.8 billion (assuming a RM150 million burn rate in the fourth quarter of its financial year ended Dec 31, 2014 [4QFY14]). This marks another record high for its order book level and translates into a cover of 8.4 times FY13 (trailing) and 4.7 times FY14 (prospective) construction revenue.

With this job in the bag, 46% of our FY15 order book replenishment target has been met. We see potential upside to job wins this year as it is only the month of January. To recap, job wins almost doubled our assumption in FY14, coming in at RM1.1 billion. Mitrajaya is targeting for RM1 billion in new job wins this year. However, we choose to take a conservative stand and maintain our FY15 assumption at RM500 million.

This recent job win reinforces our view that Mitrajaya has a strong working relationship with Putrajaya Holdings. Over the years, it has managed to secure various contracts from the latter.

Risks to our call include execution risks on the group’s construction jobs and slow sales for its property developments.

We maintain projections as year-to-date job wins are still within our RM500 million new job wins target. However, we see potential upside to our target as 46% of it has already been met this month.

We forecast earnings to double in FY14 and growing another 51% and 20% in FY15 to FY16 respectively amid the higher base. All in all, we project a three-year earnings compound annual growth rate of 55%.

Mitrajaya is an under-researched hidden gem which offers superior earnings growth at cheap valuations of six times and five times FY15 to FY16 price-earnings ratio and decent yields of 3% to 6%. It is our top small-cap construction pick.

Our TP is based on 10 times FY15 earnings, in line with our target valuation parameter used for small-cap contractors. For an alternate valuation perspective, the net value of its land bank alone is already worth RM1.88 per share. Investors with a higher risk appetite can consider its warrants (exercise price: 90 sen, expiry: July 2016) which has seen its premium compress to an all-time low (19.5%). — HLIB Research, Jan 29

This article first appeared in The Edge Financial Daily, on January 30, 2015.