Results

• Mitrajaya reported its 3QFY17 results with revenue coming in at RM298.4m (-1% QoQ, +19% YoY) and earnings of RM20.7m (+83% QoQ, -23% YoY). This brings cumulative 9M earnings to RM50.8m, decreasing 32% YoY.

• The results have been adjusted to remove the impact of its compulsory land sale in Pengerang in which Mitrajaya has received payments of RM13.6m and corresponding profit of RM12.4m.

Deviation

• 9M core earnings accounted for 76% of our full year forecast which is within expectations.

Dividends

• None declared.

Highlights

• Construction hampered by RAPID. Despite 9M construction revenue increasing 23% YoY, EBIT fell by 52%. Margin contracted YoY from 13% to 5% as a result of cost overruns for its projects at RAPID. This was due to (i) additional cost to comply with stringent client requirements, (ii) different working procedures and (iii) tighter than expected deadlines. The 2 RAPID jobs currently make up c.3% (RM61m) of its orderbook with completion rates at c.75%. While the works are expected to be completed in mid-2018, management shared that most of the critical works should be done by end-2017. Management feels that there will be more clarity to margin once the critical works are completed. It will be submitting variation order (VO) claims for the additional cost incurred although the quantum has yet to be finalised. Current orderbook of RM1.7bn translates to a 2x cover on FY16 construction revenue.

• Wangsa9 continues to drive property. The property segment witnessed 9M revenue and EBIT surging by 85% and 124% respectively which was largely driven by Wangsa9. Its recently launched affordable housing in Puchong Prima has achieved a 98% take up rate. Overall unbilled sales of RM201m imply a healthy cover of 2x on FY16 property revenue.

Risks

• Continued losses for its RAPID projects would be the key risk.

Forecasts

• Unchanged as the results were inline.

Rating

Upgrade to BUY, TP: RM0.96 (ex. rights)

• While we expect earnings to decline by 34% in FY17, a recovery should set in for FY18 (+18% YoY). Coupled with its share price decline of 47% since its recent peak in mid May, we feel there is now sufficient buffer to upgrade our rating from Hold to BUY.

Valuation

• Our unchanged TP of RM0.96 is based on 10x FY18 earnings and has taken into account the EPS dilution from the impending 1 for 5 rights issue (indicative rights price: RM0.68).

Source: Hong Leong Investment Bank Research - 29 Nov 2017