News

• Proposes to dispose Optimax. Mitrajaya has proposed to dispose its 51% stake in Optimax Eye Specialist Centre for RM5.1m.

Comments

• Background. Optimax is the largest standalone eye specialist in Malaysia with 8 centres nationwide and has handled over 90k cases. While Optimax provides a wide range of eye related treatments, laser surgery or Lasik is its main contributor. Mitrajaya acquired a 51% stake in Optimax back in 2001 as part of its diversification plans. Optimax was mostly loss making from FY08 to FY12 but managed to return to the black in FY13 and FY14.

• Fair valuation. In FY14, Optimax posted PBT of RM0.8m. Assuming a standard 25% effective tax rate, its PATMI would be RM0.6m. At Mitrajaya’s proposed disposal price of RM5.1m for its 51% stake, this would translate to a trailing FY14 P/E of 16.9x. We deem this valuation as fair as our channel checks reveal that the “mid-teens” P/E multiple is the “going rate” for smaller unlisted healthcare / medical related businesses.

• Mildly positive. Optimax has never been a significant contributor to Mitrajaya’s profits. In FY14, it made up 5% of revenue and 1% of PBT. As such, its disposal will have an insignificant impact to earnings. We are slightly positive by this move as it allows Mitrajaya to remain focus on its core business of construction and property development.

Risks

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

Forecasts

• Our forecasts are unchanged as Optimax’s contributions are very marginal.

Rating

BUY, TP: RM1.97 (Under Review)

• Mitrajaya’s share price has appreciated 69% since our TP upgrade from RM1.52 to RM1.97 in late Jan. With the sharp share price rise in the past 2.5 months, there now appears to be minimal upside (6%) to our existing TP.
• While our TP of RM1.97 is currently under review, we highlight a potential upside bias driven by potentially stronger than expected FY15 earnings and orderbook replenishment. Moreover, current P/E valuation of 9.7x for FY15 and 7.9x for FY16 remained undemanding, especially in view of the expected strong earnings growth ahead.

Valuation

• Our TP is based on 10x FY15 earnings, inline with our target valuation parameter used for small cap contractors.

Source: Hong Leong Investment Bank Research - 16 Apr 2015