News

• Wins affordable housing job. Mitrajaya was awarded a RM229.9m affordable housing contract by Putrajaya Holdings. The contract involves the construction of 3 blocks of 20 storey (1062 units) apartments in Precint 5, Putrajaya. The contract duration is for 3 years and is expected to be completed by Feb 2018.

Comments

• Within expectations. This contract win is within our expectations (i.e. within the RM200-250m range) as highlighted in our TP upgrade report yesterday.

• Orderbook hits another record high. Including this recent contract, we estimate Mitrajaya’s orderbook to currently stand at RM1.8bn (assuming RM150m burn rate in 4QFY14). This marks another record high for its orderbook level and translates to a cover of 8.4x FY13 (trailing) and 4.7x FY14 (prospective) construction revenue.

• Potential upside to job wins. With this job in the bag, 46% of our FY15 orderbook replenishment target has been met. We see potential upside to job wins this year as it is only the month of January. To recap, job wins almost doubled our assumption in FY14, coming in at RM1.1bn. Mitrajaya is targeting for RM1bn in new job wins this year. However, we choose to take a conservative stand and maintain our FY15 assumption at RM500m.

• Strong clientele base. This recent job win reinforces our view that Mitrajaya has a strong working relationship with Putrajaya Holdings. Over the years, it has managed to secure various contracts from the latter.

Risks

• Execution risk on its construction jobs and slow sales for its property developments.

Forecasts

• Maintain projections as YTD job wins are still within our RM500m new job wins target. However, we see potential upside to our target as 46% of it has already been met in the month of January.
• We forecast earnings to double in FY14 and growing another 51% and 20% in FY15-16 amid the higher base. All in all, we project a 3 year earnings CAGR of 55%.

Rating

BUY, TP: RM1.97

• Mitrajaya is an under researched hidden gem which offers superior earnings growth at cheap valuations of 6x and 5x FY15-16 P/E and decent yields of 3-6%. 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, the net value of its landbank alone is already worth RM1.88/ share.
• Investors with a higher risk appetite can consider its warrants (exercise price: RM0.90, expiry: July 2016) which has seen its premium compress to an all-time low (19.5%).

Source: Hong Leong Investment Bank Research - 29 Jan 2015