News

• Disposing its stake in Optimax. Mitrajaya announced that it has entered into a Sale and Purchase of Shares to dispose its 51% stake in Optimax for a cash consideration of RM5.1m. The transaction is expected to be completed by mid-2016.

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 since FY13 and has remained profitable since.

• Price tag appears fair. Optimax recorded PBT of RM1.5m for 9MFY15. Annualising this and assuming a 25% tax rate would imply net earnings of RM1.5m for the full year FY15. At the price tag of RM5.1m for a 51% stake, this would imply FY15 P/E of 6.6x. We reckon this is fair given the relatively small profit base of Optimax. Looking at it from a P/B perspective, this would translate to a multiple of 1.4x.

• Disposal of a non-core business. Optimax has never been a significant contributor to Mitrajaya’s profits. In FY14, it only made up 5% of revenue and 1% of PBT. For the 9MFY15 period, revenue and PBT contributions stood at 1% and 2%, respectively. As such, its disposal will have an insignificant impact to earnings. We are slightly positive by this move in that it allows Mitrajaya remain focused on its core business of construction and property development.

Risks

• We see minimal risks to this transaction as it is relatively small and is merely a disposal of a non-core business.

Forecasts

• The sale of Optimax will result to a gain on disposal of RM1.5m in FY16. This in turn would enhance our FY16 earnings forecast by 1.5% but would be treated as an exceptional item.

Rating

• Maintain BUY, TP: RM1.95
• 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 9x and 7.5x FY15-16 P/E

Valuation

• Our SOP based TP of RM1.95 implies FY15-16 P/E of 15.6x and 13x respectively.

Source: Hong Leong Investment Bank Research - 10 Feb 2016