Results

• Mitrajaya reported 1QFY17 results with revenue coming in at RM280.5m (+11% QoQ, +44% YoY) and core earnings of RM18.9m (-25% QoQ, +2% YoY).
• We have adjusted the abovementioned results to remove the impact of its compulsory land sale in Pengerang in which Mitrajaya has received the 2nd payment of RM10.9m, translating to a gain of RM9.9m.

Deviation

• 1Q core earnings accounted for 17% of our full year forecast (consensus: 18%). Even after accounting for stronger subsequent quarters ahead, we deem the results to be slightly below expectations.

Dividends

• None declared.

Highlights

• Lower construction margins. Although the construction division witnessed revenue growth (+9% QoQ, +49% YoY), margins contracted to 8.9% compared to 14.6% in 4QFY16 and 9.8% in 1QFY16. Consequently, PBT fell -34% QoQ but was still higher YoY by +35% (thanks to strong topline growth). We believe the lower margin was due to some of its older jobs hitting the tail end and hence, lower margin recognition.
• Orderbook remains healthy. Mitrajaya has managed to secure RM434m worth of jobs YTD. This brings its orderbook to RM1.7bn, implying a cover of 2x on FY16 construction revenue. Management is gunning to hit RM1bn in new job wins this year.
• Slower for property. Whilst property revenue (ex land sale) increased +27% QoQ and +14% YoY, PBT fell by -24% and -12% over the same comparable period. Nonetheless, we expect this to pick up in the coming quarters as Wangsa9 progresses further. Unbilled sales (mostly Wangsa9) stands at RM204m, translating to a cover of 2x on FY16 property revenue.

Risks

• Slower than expected orderbook replenishment.

Forecasts

• We cut FY17-18 earnings by 7% and 1% respectively after imputing lower construction margins. Given the high base and timing gap on newly secured jobs, we expect earnings to remain flat in FY17 before picking up again in FY18. Rating Maintain BUY, TP: RM1.89
• Whilst earnings may have hit a temporary plateau, we expect growth to resume in FY18. Valuations are undemanding at FY17-18 P/E of 9.3x and 8x respectively. Mitrajaya?s net land value of RM638m backs up 68% of its market capitalisation.

Valuation

• Following the earnings cut, our SOP based TP is reduced from RM1.95 to RM1.89. This implies FY17-18 P/E of 12.5x and 10.7x respectively.

Source: Hong Leong Investment Bank Research - 29 May 2017