Results Highlights

• Mitrajaya’s 4Q2017 net profit sank 60.5% Y.o.Y to RM17.3 mln, dragged down by a provision for cost overrun for the RAPID project, rising material and labour cost that resulted in the erosion of construction margins and lower property sales amid the generally soft property market. Revenue for the quarter declined marginally by 1.6% Y.o.Y to RM269.3 mln.

• For 2017, cumulative net profit fell 32.2% Y.o.Y to RM80.5 mln. Revenue for the year, however, climbed 20.5% Y.o.Y to RM1.16 bln. The reported earnings were above our expectations, amounting to 117.7% of our 2017 net profit forecast of RM68.4 mln, while revenue for the year also came in within our expectations, accounting to 100.9% of our RM1.15 bln forecast.

• Segmentally, the group’s 4Q2017 construction segment pretax profit sank 67.7% Y.o.Y to RM11.2 mln on additional cost incurred for safety and working procedure compliance on the RAPID project. The property development segment’s pretax profit slipped 41.2% Y.o.Y to RM12.4 mln on slower topline growth. For the South Africa property development segment, its pretax profit decreased 69.9% Y.o.Y to RM1.6 mln on lower profit margin from the sales billings.

• As of 2017, Mitrajaya’s net gearing stood at 0.4x. A dividend of 2.0 sen per share was proposed.

Prospects

Although Mitrajaya did not secure any major projects in 4Q2017, the group’s construction orderbook replenishment of RM1.13 bln from a total of six projects in 2017 already accounted to 93.9% of our orderbook replenishment target of RM1.20 bln (see Appendix 1). This brings its unbilled construction orderbook to RM1.56 bln – implying an orderbook-to-cover ratio of 1.6x to 2017 construction revenue of RM994.2 mln that will provide earnings visibility over the next 2-3 years. With the RAPID project coming to a tail end by 1H2018, we expect its construction margins to normalise to the 10.0%- 12.0% level. We have also imputed an orderbook replenishment assumption of RM800.0 mln for 2018 from its tenderbook of RM3.30 bln.

The affordable housing scheme in Puchong Prima has achieved a strong take up rate of 98.0%. For 2018, the group aims to launch two property development projects with a combined GDV of RM318.0 mln: (i) Block A of Wangsa 9 with an estimated GDV of RM300.0 mln, and (ii) 24 unit shop-houses in Johor with a GDV of RM18.0 mln. Moving forward the group’s property development unbilled sales of RM181.9 mln will provide earnings visibility over the next 2-3 years.

With no new launches South Africa, we expect marginal contribution to the group’s revenue in 2018. Albeit that, Mitrajaya aims to develop the remaining landbank to residential and commercial units in the foreseeable future.

Valuation and Recommendation

We lift our earnings forecast for 2018 and 2019 by 7.8% and 8.2% to RM81.7 mln and RM89.6 mln respectively to account for the lesser construction cost overrun in certain construction projects, coupled with lower depreciation charges. We also maintain our BUY recommendation on Mitrajaya with a higher target price of RM1.05 (from RM0.95).

Our target price was derived from sum-of-parts valuation as we ascribed a target PER of 13.0x to its 2018 (fully diluted) construction earnings, while its local and overseas property development units are valued at an unchanged 0.8x their respective book values.

Risks to our forecast and target price include the group failing to reach the orderbook replenishment target that could dent its future earnings and a spike in input cost affecting both its construction and property development margins. Further tightening of credit facilities from financial services providers will continue to negatively impact the general property market and the sale of its properties.

Source: Mplus Research - 28 Feb 2018