Highlights

• Backed by superior orderbook cover. Given strong job wins recorded last year at RM1.1bn, Mitrajaya currently sits on an all-time high orderbook of RM1.9bn. This implies a superior orderbook cover of 5.1x FY14 construction revenue vis-à-vis its peers average of 2.1x. As such, earnings growth visibility over the next 2 years is already anchored by this.

• More in the pipeline. YTD job wins amount to RM230m and management is gunning for RM1bn this year compared to our more conservative assumption of RM500m. Mitrajaya has tendered for RM1.9bn worth of jobs comprising buildings in the Klang Valley (RM1.4bn) as well as buildings (RM350m) and infra works (RM180m) in Johor. We gather that a potential contract win (RM300m) could be on the cards over the next 1 to 2 months. Aside that, Mitrajaya is also a strong contender for the LRT3 station works (RM750- 1,000m) which should take off in 1Q16.

• Riding the ebb and flow. While take up rate for Phase 1 (RM185m) of Wangsa 9 has hit 70%, it has been much slower for Phase 2 (RM195m) at only 17%. We won’t deny, like all developers, Mitrajaya is also subjected to the ebb and flow of the property cycle. That said, our sales assumptions have been conservative to begin with at only RM100m this year against a backdrop of RM455m in ongoing developments and RM138m in inventories.

• Exploring affordable housing. Mitrajaya is exploring a potential affordable housing development in Putrajaya. Take up is almost certain given demand that outstrips supply. To ensure viability of the development, the Government is willing to subsidise up to 25% of construction cost.

Risks

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

Forecasts

• We raise FY15-16 earnings by 3% due to bookkeeping changes following the release of its FY14 audited accounts.
• FY15 will be another record year for earnings in which we forecast to growth 49% YoY. Our earnings estimate of RM80m is 20% below management’s internal target of RM100m, providing room for upgrade should results (1QFY15 released on 25 May) surprise on the upside.

Rating

• Maintain BUY, TP: RM2.92 (+61% upside)
• Mitrajaya offers investors superior earnings growth prospects with 3 year CAGR of 24% on the back of undemanding valuations at 9.1x and 7.6x FY15-16 P/E.

Valuation

• We raise our TP from RM1.97 to RM2.92 given earnings upgrade and switching our valuation from P/E based to Sum of Parts (SOP). Our TP implies FY15-16 P/E of 14.7x and 12.2x respectively.
• Near term “bonus” to investors would come in the form of free warrants (1 for 5 basis) and 5 sen DPS, both of which should go ex in 3Q15.

Source: Hong Leong Investment Bank Research - 19 May 2015