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Saturday, November 15, 2014

Mitrajaya eyes RM1.5b order book


DESPITE the anticipation of a slowdown in the construction sector, Mitrajaya Holdings Bhd is maintaining its order book target of RM1.5bil for 2015.
It is, however, looking to focus more on infrastructure projects that will be implemented in the coming year and next.
“Building works, particularly from the private sector is expected to soften in 2015. So our construction division will shift its focus on infrastructure works that are going to be implemented. These include new light rapid transit (LRT) and mass rapid transit lines, the West Coast Expressway and the other highways in the Klang Valley,” managing director Tan Eng Piow (pic) tells StarBizWeek via email.
Tan a civil engineer is Mitrajaya’s founder and single largest shareholder with a 41% stake.
As far as construction stocks go, Mitrajaya is a small-cap player with a market cap of about RM382.3mil, but gaining investor interest. Year-to-date, the stock price has surged some 90% to trade at 96 sen as of Thursday.
Hong Leong Investment Bank (HLIB) Research in an initiation report early this month notes that Mitrajaya has successfully grown its job wins from less than RM100mil a year during financial year 2008 to 2010 to over RM500mil currently.
New job wins year-to-date are at a record RM950mil, surpassing last year’s high of RM501mil and bringing Mitrajaya’s total order book to about RM1.7bil now.
This, according to Tan, will keep the company busy until 2017.
Mitrajaya has recently secured a RM402mil contract to build the main building of a high-rise residential project for UEM Sunrise Group in Mont Kiara.
Last December, it clinched a sizeable contract worth RM428mil to design and construct the headquarters of the Malaysian Anti-Corruption Commission in Putrajaya.
HLIB Research says in a report that Mitrajaya stands a good chance of securing another contract worth RM200mil-RM250mil by year-end.
The research house notes that Mitrajaya’s order book implies a strong cover of 7.8 times financial year ended Dec 31, 2013 (FY13) construction revenue versus peers average of 2.1 times, thus, provide a high degree of earnings growth visibility.
“Its order book profile is also relatively ‘young’ with 75% comprising jobs that were secured less than a year ago, mitigating cost overrun risks,” HLIB Research says in an earlier note.
The research firm reckons that Mitrajaya is a likely beneficiary of the rollout of the RM9bil LRT Line 3 announced in Budget 2015 recently given its track record in the ongoing LRT extension works.
Mitrajaya has been selected as one of Syarikat Prasarana Negara Bhd’s nominated subcontractors for the ongoing Ampang and Kelana Jaya LRT extensions. The packages involve works related to five stations worth RM146mil for the Ampang line and two stations valued at RM47mil for the Kelana line.
According to HLIB Research, based on the reported 24 stations for LRT Line 3 at an estimated cost of RM30mil to RM40mil per station, there would be RM720mil to RM960mil worth of station works up for grabs.
Construction is Mitrajaya’s key contributor at 64% of revenue as at the end of financial year 2013, followed by property development at 28% and optical healthcare at 6%. The research expects Mitrajaya’s construction gross margins to stay at the low to mid teens range as it balances between small-size, high margin jobs and open tender, lower margin jobs.
For the second quarter ended June 30, it posted a net profit of RM13.57mil, which is more than double from the RM4.37mil recorded in the previous corresponding quarter.
HLIB notes that Mitrajaya’s net gearing is relatively low at 14.8% as of the second quarter ended June 30, 2014. “This has come off substantially from its high of 47.5% in FY08. Of its RM73.5mil total debt, 76% is short-term in nature, which is mainly used by the construction division for working capital.” The research firm says projects net gearing remains manageable within the range of 16%-22% for FY14-16.
As for its property business, the company has launched the first phase of Wangsa 9 Residency luxury condominiums in Wangsa Maju, Kuala Lumpur. The project has a gross development value of RM680mil.
“We just had our official sales gallery opening on Nov 4 and sales have been encouraging… Take-up rates are around 70%,” Tan says.
The project consists of three blocks of 565 condominium units, with prices starting from RM600 per sq ft (psf).
HLIB Research expects pre-tax profit for the project to be 30% as Mitrajaya’s land cost for the Wangsa Maju parcel was only RM15mil.
The 3ha leasehold parcel is 150m away from the Sri Rampai LRT station.
Unit sizes for the condominiums come in at 1,033 sq ft, 1,733 sq ft, 1,647 sq ft and 2,336 sq ft.
“So far we do observe an overall softer property market condition. However, for the Wangsa 9 project, the take-up rates have been good due to the strategic location of the development, which is near an LRT station,” Tan explains.
Prices of other nearby high-rise residential new launches at recent times are priced at an average of RM600 psf to RM650 psf.
Projects in the vicinity include IJM Land’s Seri Riana phase two. There are 284 units and expected completion is in 2017.
Another nearby project is Infiniti Residences that offers 523 units.
These projects are close to the Sri Rampai LRT stations and the Wangsa Walk mall.
Mitrajaya has appointed multinational company AECOM to provide civil, structural and geotechnical services for Wangsa 9 Residency, which includes cutting into a 25m hill slope and designing a structure for the building.
Part of the land where the project sits on is a hill slope that is categorised under Class 3 and 4.
Up next, Mitrajaya is looking to roll out a mixed development in Puchong Prima next year. The company is still planning for the project worth RM1.5bil that will comprise a five-storey shopping mall, serviced apartments and a hotel.
These two projects will give its property development income a boost from the 28% contributed last year, analysts say.
That said, a weaker-than-expected property market poses risks for its prospects.
Mitrajaya is sitting on a land bank worth RM755mil versus its book value of RM188mil.

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