Results

• Mitrajaya posted 1QFY15 results with revenue of RM161.6m (+55% YoY, +19% QoQ) and earnings of RM13.4m (+23% YoY, -17% QoQ).

Deviation

• 1Q earnings made up 17% of our full year forecast which we regard as inline. Traditionally, 1Q tends to be the weakest quarter given slow construction progress due to the Lunar New Year festivities. To illustrate, in the past 3 years, 1Q only made up 16%, 12% and 20% of full year earnings.

Dividends

• None. Usually declared in 4Q.

Highlights

• Strong orderbook support. Construction work appears to be progressing well with division revenue up +82% YoY and +51% QoQ. Its orderbook currently stands at RM1.8bn, translating to a superior cover of 4.7x FY14 construction revenue (peers average: 2.1x). Momentum is expected to further accelerate in the coming quarters as newer jobs such as the PP1AM housing (RM230m), BNM complex (RM187m), MK22 (RM402m) and Raffels School (RM270m) gain traction.

• Gunning for more. YTD job wins currently amount to RM230m vs. management’s full year target of RM1bn and our more conservative assumption of RM500m. Total tenders currently stand at RM1.9bn comprising buildings in the Klang Valley (RM1.4bn) as well as buildings (RM350m) and infra works (RM180m) in Johor. Aside that, Mitrajaya is also a strong contender for the LRT3 station works (RM750- 1,000m) which should take off in 1Q16.

• Efforts to boost sales. 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%. In efforts to boost sales, last weekend, Mitrajaya conducted an official launch for Wangsa 9. It is also mulling to engage property agents and advertising to shore up sales.

Risks

• Delays in construction execution and softening property market.

Forecasts

• No changes to estimates as the results were inline.
• We maintain our earnings projections and believe that FY15 will be another record earnings year (+49% YoY) for Mitrajaya.

Rating

BUY, TP: RM2.92 (+55% upside)

• Mitrajaya remains our top pick amongst the small cap contractors as it offers robust growth prospects (3 year CAGR: 24%) at inexpensive valuations of 9.4x and 7.8x FY15-16 P/E.
• Dividend yield is also decent at 3.7-4.5% for FY15-16, respectively.

Valuation

• Our SOP based TP of RM2.92 implies FY15-16 P/E of 14.7x and 12.2x respectively.

Source: Hong Leong Investment Bank Research - 26 May 2015