MITRAJAYA Holdings Bhd has been the best-performing stock in the construction and property sectors this year, with the 91% rise in its share price outperforming the 11.6% and 4.21% gains in the local bourse’s construction and property indices as at April 17.

The reason for renewed investor interest in the stock could be the group’s burgeoning property development division, whose contribution may increase substantially, and continued growth in its core construction business.

Mitrajaya’s management says between now and 2017, it plans to launch four developments with a combined gross development value (GDV) of RM2.47 billion, including the much-anticipated RM1.5 billion mixed-use project called Puchong Prima.

The group also hopes to secure RM600 million worth of jobs by the end of the year, to add to its construction order book of RM1.88 billion.

For the financial year ended Dec 31, 2014, property development contributed 25.1% or RM18.15 million to the group’s pre-tax profit, while construction accounted for 50.3% or RM36.45 million.

In an email reply to The Edge, Mitrajaya managing director Tan Eng Piow says the group is keen to monetise its land assets in the coming years.

Apart from its landbank of 257.66 acres in Malaysia, the group owns 741 acres in South Africa, the bulk of which comprises its wholly owned Blue Valley Golf and Country Estate club and resort.

“We are working to develop some of the land assets. While the Wangsa Maju development has just been launched, the Puchong Prima project will be unveiled by the first quarter of next year,” Tan says.

The market value of Mitrajaya’s land assets has gone up tremendously in recent years, thanks to their strategic locations in Johor and the Klang Valley (see table). This is a major advantage as the group can realise bigger margins from its property offerings.

For instance, Mitrajaya bought the 15 acres for Puchong Prima for RM21 million or RM33 psf back in 1999, while the market price now is RM306 psf. The substantial savings in terms of land cost could mean much better margins for the development, which will comprise a five-storey mall, three blocks of serviced apartments and a boutique hotel.

Another key development, Wangsa 9, which comprises three residential towers, is seeing brisk sales in spite of the current cautious sentiment in the property market.

According to Tan, 144 of 338 units in the first two phases of Wangsa 9 are sold.

“Phase 3 is expected to be launched next year. We are confident of selling all 565 units by end-2017 because of the strategic location,” he says. The total GDV is RM650 million.

Both Wangsa 9 and Puchong Prima are located near LRT stations, which is a plus factor.

Mitrajaya also has grand plans for the 139 acres of the golf course land in South Africa that can be developed or sold. Since last year, the group has started developing the tract instead of selling it plot by plot. The estimated GDV of this development is RM112 million.

Nonetheless, Mitrajaya’s focus is still construction. Tan says between December 2013 and January 2015, the company secured RM1.79 billion worth of contracts.

It is currently bidding for RM1.55 billion worth of building and infrastructure jobs in Johor, Putrajaya and the Klang Valley.

“Our advantage is mainly our track record — delivery of projects within the given time frame. Several contracts were secured recently after the prospective clients visited our completed projects,” says Tan.

Mitrajaya has seen improved margins in its construction division. In FY2014, it reported a pre-tax profit of RM36.45 million on revenue of RM370.67 million, which translates into a margin of 9.8%. This was 6.1% in FY2013.

“The construction division will continue to achieve respectable profits in view of its RM1.88 billion order book. The improvement in margins is due to proper planning and project monitoring,” says Tan.

Increased trading in Mitrajaya saw its share price rise from 94 sen on Jan 2 to RM1.88 on April 17, giving it a market capitalisation of RM754.43 million. According to Bloomberg, Mitrajaya’s historical earnings multiple of 13.6 times is well below the sector’s average of 18 times, derived from the Kuala Lumpur Construction Index.

While Mitrajaya (fundamental: 1.7; valuation: 1.4) is trading at almost twice its book value on a per share basis, this may be due to the conservative estimates of its land assets. The indicative market value of its Malaysian landbank is RM623.17 million, nearly four times its carrying book value of RM164.43 million as at Dec 31, 2014.

In a February note, Kenanga Research projects a big jump in Mitrajaya’s earnings, thanks to the bigger contributions from its construction and property divisions.

It says Mitrajaya’s revenue will reach about RM1 billion in FY2015 and FY2016, or double FY2014’s RM520.2 million.

Kenanga Research’s target price for the stock is RM2.37, based on 11 times projected FY2015 net profit of RM85.4 million.

This article first appeared in The Edge Malaysia Weekly, on April 20 - 26, 2015.

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