Thursday 28 Mar 2024
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Mitrajaya Holdings Bhd
(Nov 14, RM1.01)
Maintain buy with target price (TP) of RM1.52:
In our meeting with management on Nov 13, we were made to understand that it has RM1.5 billion in outstanding tenders, mainly comprising building works in the Klang Valley, Nusajaya and Putrajaya.

There is a good chance that another contract (RM200 million to RM250 million) could be secured by year-end, bringing financial year 2014 (FY14) job wins to over RM1.1 billion.

Year-to-date (YTD) job wins have been stellar for Mitrajaya at RM949 million (FY13: RM501 million), pushing its order book to a record high of RM1.7 billion.  This implies a very strong cover of 7.8 times FY13 construction revenue (peers’ average: 2.1 times), providing a high degree of earnings growth visibility. We understand that capacity is not an issue for an order book level of up to RM2 billion.

Over the weekend, we paid a visit to Mitrajaya’s Wangsa 9 (gross development value: RM650 million) sales gallery.

Despite having been launched only a week ago, the take-up rate for Phase 1 (RM200 million) has hit 64%. If bookings (with down payment) were counted, take-up has hit 80%.

Given the encouraging response to Phase 1, Phase 2 (RM200 million) will be launched sometime in December this year and Phase 3 (RM250 million) in early 2015.  We envisage strong take-up for Wangsa 9 given the strategic location behind Wangsa Walk Mall, light rail transit (LRT) connectivity with the Sri Rampai station 150m away and close proximity to Kuala Lumpur’s city centre (7km).

The risks are execution risk, rising material prices, project implementation delays, weak property market and political risks.

The third quarter (3Q) FY14 results announcement is scheduled for release on Nov 26.

We expect earnings to be at least equal to 2Q. This would bring the nine-month (9M) earnings to RM38 million, making up 79% of our full-year projection. There is upside to our earnings forecast as YTD job wins of RM949 million have surpassed our full-year target of RM600 million.  For now, we maintain our FY14 earnings forecast which is expected to almost double (an increase of 92% year-on-year). Earnings are projected to display a superior FY14 to FY16 compound annual growth rate of 40%.

Mitrajaya is an under-researched hidden gem which offers superior earnings growth at cheap valuations of 7.9 times and 6.3 times FY14 and FY15 price-earnings ratio (PER) and decent yields of 3% to 5%. 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, at current market capitalisation, investors buying Mitrajaya would be getting its land at a 49% discount to market value and all its core business of construction, property development and Optimax (not to mention a golf course in South Africa) for free. — Hong Leong Investment Bank, Nov 14.

Mitrajaya_theedgemarkets

This article first appeared in The Edge Financial Daily, on November 17, 2014.

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