News

• Wins PPA1M job. Mitrajaya has been appointed as the main contractor by Putrajaya Holdings to build 404 units of apartments under the PPA1M scheme for RM103m. The job is for a period of 3 years and is expected to be completed by Jan 2021.

Comments

• First job win for the year. This represents Mitrajaya’s first job win for the year. In the past, Mitrajaya has been awarded several contracts from Putrajaya Holdings and has also undertaken a PPA1M housing job before.

• Eyeing on more. Mitrajaya managed to secure RM944m worth of contracts for FY17, close to its guidance of RM1bn. Management prudently believes it can secure another RM1bn for FY18. Post completion of its rights issue (sometime in 1Q18), management guides that the balance sheet of its construction segment will be on a much stronger footing, enabling it to bid more aggressively for jobs.

Risks

• EPS dilution resulting from the impending 1 for 5 rights issue and continued losses (cost overrun) for its RAPID contracts.

Forecasts

• Unchanged as YTD job wins are still within our RM1bn target for FY18.

Rating

Maintain BUY, TP: RM1.15 (TERP)

• With recovery in its 3QFY17 earnings, we believe the risk related to its RAPID contracts has now subsided. Further, bidding momentum is expected to step up post rights issue once its construction division’s balance sheet is on a stronger footing.

Valuation

• Our theoretical ex rights TP is raised to RM1.15 as we increase our P/E target from 10x to 12x, reflecting the diminished risk associated with its RAPID contracts. Indicative rights price is assumed at RM0.68.

Source: Hong Leong Investment Bank Research - 10 Jan 2018