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Friday, November 14, 2014

Mitrajaya - Robust prospects ahead



Another  contra ct  by  year  end?  In  our  meeting  with management  yesterday,  we  were  made to understand that it has  RM1.5bn  in  outstanding  tenders,  mainly  comprising building  works  in  Klang  Valley,  Nusajaya  and  Putrajaya. There  is  a  good chance that another contract (RM200-250m) could  be  secured  by  year  end,  bringing  FY14  job  wins  to over  RM1.1bn.
Record  high  job  wins,  orderbook.   YTD  job  wins  have been  stellar  for  Mitrajaya  at  RM949m  (FY13:  RM501m), pushing  its  orderbook  to  a  record  high  RM1.7bn.  This implies  a  very  strong  cover  of  7.8x  FY13  construction revenue  (peers  average:  2.1x),  providing  a  high  degree  of earnings growth visibility.  We understand  that capacity is not an issue for an orderbook  level  of up to RM2bn.
Good  take  up for Wangsa 9.  Over the weekend, we paid a visit  to  Mitrajaya’s  Wangsa 9 (GDV: RM650m) sales gallery. Despite  having  launched  only  a  week  ago,  take  up  rate  for Phase  1  (RM200m)  has  hit  64%.  If  bookings  (with  down payment)  were  counted, take up rate has hit 80%. Given the encouraging  response  for  Phase  1,  Phase  2  (RM200m)  will be  launched  sometime  in  Dec   14  and Phase 3 (RM250m) in early  2015.  We  envisage  strong  take  up for Wangsa 9 given (i)  strategic  location  behind  Wangsa  Walk  Mall,  (ii)  LRT connectivity  with  the  Sri  Rampai  station  150m away and (iii) close proximity to KL city (7km).


  • Execution  risk,  rising  material prices, project implementation delays, weak property market and political risks.


3QFY14  results  announcement  is  scheduled  for  release  on 26  Nov.  We  expect  earnings  to  be  at  least  equal  to  that  of 2Q.  This  would  bring  9M  earnings  to  RM38m,  making  up 79% of our full year projection.
There  is  upside  to  our  earnings  forecast  as  YTD job wins of RM949m  has surpassed our full year target of RM600m.
For  now,  we  maintain  our  FY14  earnings  forecast  which  is expected  to  almost  double  (+92%  YoY).  Earnings  are projected  to display a superior  FY14-16  CAGR of 40%.


BUY,  TP: RM1.52
  • Mitrajaya  is  an  under  researched  hidden  gem  which  offers superior  earnings  growth  at  cheap  valuations  of  7.9x  and 6.3x  FY14-15  P/E  and  decent  yields  of  3-5%.  It  is  our  top small cap construction pick.


  • Our TP is based on 10x FY15 earnings, inline 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  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!
Source: Hong Leong Investment Bank Research - 14 Nov 2014

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