News 

Building  contract  for  MK22.  Mitrajaya  was  awarded  a RM402m  contract  by  UEM  Sunrise  to  construct  2  building blocks  for  the  MK22  condominiums  in  Mont  Kiara.  The contract is scheduled for completion  in Aug 2017.

Comments 

Positive  surprise .  In  our  initiation  report  yesterday ,  we highlighted  the  possibility  of  Mitrajaya  securing  another contract  by  year  end.  The  value  of  RM402m  is  however, larger  than our initial expectations of RM200m.   

Record  high  job  wins.  YTD  job  wins  amount  to  RM949m, marking  another  record  high  (FY13:  RM501m)  which surpasses  our  full  year  target  of  RM600m.   This  is  the  5 th consecutive  year  that  Mitrajaya  has  managed  to  grow  its orderbook  replenishment  (CAGR:  72%).

Sizable  orderbook  cover.  With  this  recent  job  win,  we estimate  its  orderbook  to  stand  at  RM1.7bn,  implying  a superior  cover  of  7.8x  on  FY13  construction  revenue.  In comparison,  contractors  under  our  coverage  only  command an  average  cover  ratio  of  2.1x.  Even  in  the  absence  of securing  any  new  jobs  or  margin  expansion,  Mitrajaya’s earnings  growth  is  already anchored simply by running down its existing orderbook.

Strong  take  up.  Earlier  this  week,  Mitrajaya  launched  the Wangsa  9  condo  (GDV:  RM650m).  We  expect  strong  take up  given  its  location  opposite  Wangsa  Walk  Mall,  close proximity  to  KL  city  c entre  (7km)  and  LRT  connectivity  with the Sri Rampai  station just 150m away.

Risks

Execution  risk,  rising  material prices, project implementation delays, property  sector slowdown  and political risk.

Forecasts

There  is  upside  to  our  earnings   forecast   as  our  orderbook replenishment  assumption  has  been  surpassed  by  58%. Maintain  projections  for  now,  pending  a  meet  up  with management  next week.

We  currently  forecast  earnings  to  almost  double  this  year (+92% YoY) and to deliver  a 40% CAGR  over  3 years.

Rating

BUY,  TP: RM1.52

• Mitrajaya  is  an  under  researched  hidden  gem  which  offers superior  earnings  growth  at  cheap  valuations  of  8.3x  and 6.7x  FY14-15  P/E  and  decent  yields  of  3-5%.  It  is  our  top small cap construction pick.

Valuation

• 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  46%  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 - 6 Nov 2014