Highlights

• Job wins trump our estimates. Mitrajaya’s job wins ended on a record RM1.1bn for FY14, more than double of what it secured the previous year, which was already an all-time high then. Against our target of RM600m, this was almost double of what we assumed. Key job wins in Nov and Dec that surprised us on the upside were the MK22 condos (RM402m) and BNM’s operations complex (RM187m). We estimate its end FY14 orderbook to now stand at RM1.6bn implying cover of 7.4x (FY13 trailing) and 4.1x (FY14 prospective) against its construction revenue

• Gunning for more. Mitrajaya is targeting to achieve RM1bn in new job wins this year. Our assumption is much more conservative at RM500m which could offer room to surprise on the upside. Potential job wins could come from an affordable housing job (RM200-250m), Phase 2 of the Raffles school in Nusajaya (more than RM250m) and station works totalling RM720-960m for the impending LRT3.

• Soft sales for Phase 2. Mitrajaya launched Phase 2 (RM200m) of Wangsa 9 Residence in Dec and has thus far only seen a 10% take up rate. We are not overly concerned by this as Phase 1 (RM200m) which was launched in Oct has hit 70-80% take up rate. To boost sales for Phase 2, Mitrajaya is considering engaging agents to drive sales and tap the overseas market.

Risks

• Execution and delays for its construction jobs (nothing significant thus far) and slow sales for its property division.

Forecasts

• We raise FY14 earnings by 3% due to stronger contract billings but a much higher 30-36% for FY15-16 after we impute stronger than expected job wins last year.
• Our forecast implies superior 3 year earnings CAGR of 55%.

Rating

• Maintain BUY, RM1.97 TP (+79% upside)
• Mitrajaya is an under researched hidden gem which offers visible yet superior earnings growth at bargain valuations of 5.6x and 4.6x FY15-16 P/E (FY14e: 8.4x) coupled with attractive yields of 3.6-6.5%.
• Mitrajaya is our top pick amongst small cap contractors.

Valuation

• Our TP is based on an unchanged 10x FY15 earnings, inline with our target valuation parameter for small cap contractors.
• For an alternate valuation perspective, Mitrajaya’s net land value alone is already worth RM1.88.
• Our blue sky target for Mitrajaya could stretch to RM2.84, based on 12x FY16 earnings.
• Investors with higher risk appetite should consider the warrants which have seen its premium compress to an alltime low (26%). At our TP of RM1.97 with 0% premium, the warrants are worth RM1.07 (+123% upside)

Source: Hong Leong Investment Bank Research - 28 Jan 2015