News

• Bags 2 new jobs. Mitrajaya announced that it has won two contracts to build higher learning institution in KL and affordable homes under Rumah Selangorku scheme for a total amount of RM377m. The two jobs are scheduled to be completed within 3 years (i.e. August 2020).

Comments

• More jobs pour in. These contracts are Mitrajaya’s 3 rd and 4 th job wins for the year. This brings YTD job wins to RM811m, close to the level it achieved for the full year FY16 of RM920m. We estimate that this would bring its orderbook balance to RM1.8bn, implying a cover of 2.1x on FY16 construction revenue.

• Concerns remain on ongoing jobs at RAPID. While we are positive on these recent job wins, we continue to be concerned in the short term on its cost overruns for its ongoing projects at RAPID. To recap, 1H construction EBIT contracted from 12.9% to 5.2% owing to this cost overrun. We understand that Mitrajaya is currently recording losses on its RAPID jobs. It is estimated that the RAPID jobs make up c.10% of its orderbook.

Risks

• Continued losses for its RAPID projects would be the key risk. Management is in the midst of evaluating its cost structure for these jobs.

Forecasts

• As YTD job wins of RM811m are still within our full year assumption of RM1bn, we leave our earnings forecast unchanged.

Rating

UNDER REVIEW

• We put our rating on Mitrajaya UNDER REVIEW pending our meeting with management next week where we hope to obtain further clarity on the potential earnings drag from its RAPID jobs.

Valuation

• Our previous SOP based TP of RM1.51 implies FY17-18 P/E of 15.6x and 13.2x respectively.

Source: Hong Leong Investment Bank Research - 8 Sept 2017