Results

• Mitrajaya posted a record set of 2QFY15 results with revenue of RM243.2m (+81% YoY, +51% QoQ) and earnings of RM23.1m (+70% YoY, +72% QoQ). For the cumulative 1H period, earnings totalled RM36.5m, translating to a strong 49% YoY growth.

Deviation

• 1H earnings made up 46% of our full year forecast (36% of consensus) which we deem inline. Earnings are expected to be even stronger in 2H. The strong 72% QoQ earnings growth in 2Q is testament that momentum is gathering pace fast, making this the strongest quarter ever recorded.

Dividends

• None. Usually declared in 4Q.

Highlights

• Strong push for construction. Construction saw the best of both worlds YoY with 1H revenue almost doubling (+98%) and EBIT margins expanding from 10.9% to 11.6%. Its orderbook currently stands at RM1.8bn, implying a superior cover of 4.7x against FY14 construction revenue which should help sustain its earnings trajectory.

• Job wins to pick up. YTD job wins have totalled RM230m or 46% of our full year target of RM500m. Management shared that it is bidding for building works in the Klang Valley (RM1.5bn) and Putrajaya (RM780m) as well as infra jobs in the Klang Valley (RM200m). It is also preparing another RM300m worth of tenders. Overall, management remained upbeat to further add on to its orderbook by year end.

• South African boost. 1H domestic property revenue was lower by 26% YoY, due to the Wangsa 9 being at the initial construction stage. However, this was offset by a strong performance in South Africa with revenue up 159% YoY from the sale of 10 completed bungalows. Wangsa 9 has achieved 70% sales for Phase 1 and 26% for Phase 2.

Risks

• Delays in construction and softening property market.

Forecasts

• We maintain our earnings forecast as the results were inline and remain confident that FY15 will post another round of record earnings at RM80.2m (+49% YoY).

Rating

BUY, TP: RM2.92 (+66% upside)

• Mitrajaya remains our top pick amongst the small cap contractors as it offers a compelling case of robust growth prospects (3 year CAGR: 24%) at inexpensive valuations of 9.1x and 7.6x FY15-16 P/E.
• Share price has fallen 13% from its peak this month and we advise investors to take the opportunity to accumulate. Near term catalysts would be on 17 Aug, being the ex-date for its 5 sen dividend and 1 for 5 free warrants.

Valuation

• Our SOP based TP of RM2.92 implies FY15-16 P/E of 15.1x and 12.6x respectively. Current share price merely reflects its net land value (RM1.78/ share), implying that investors would be getting its core business of construction for free!

Source: Hong Leong Investment Bank Research - 12 Aug 2015