Results

• Mitrajaya reported its 4QFY17 results with revenue of RM267m (-11% QoQ, +6 % YoY) and core earnings of RM15m (-28% QoQ, -41% YoY). This brings FY17 core earnings to RM65.8m, declining 34%.
• The results have been adjusted to remove the impact of its compulsory land sale in Pengerang in which Mitrajaya has received payments of RM16m and corresponding profit of RM15m.

Deviation

• FY17 core earnings made up 98% of our full year estimates (consensus: 96%) which is within expectations.

Dividends

• Proposed DPS of 2 sen, bringing full year DPS to 5 sen (unchanged YoY).

Highlights

• Dragged by RAPID. Despite FY17 construction revenue increasing 18% YoY, EBIT fell 55% YoY. Margin contracted YoY from 13.8% to 5.2% as a result of cost overruns for its projects at RAPID and higher material prices. We understand that most of the critical works required at RAPID have been completed and risks of further cost overruns should be minimal moving into FY18. Furthermore, the 2 RAPID projects constitute less than 3% of its orderbook.
• Eyeing for more job wins. Mitrajaya’s orderbook stands at RM1.7bn, translating to a cover of 1.7x on FY17 construction revenue. Management shared that post right issue (to be completed in March), this should boost the balance sheet of its construction division, enabling it to undertake more jobs.

Risks

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

Forecasts

• Unchanged as the results were inline. Rating Maintain BUY, TP: RM1.15 (ex. rights)
• Although FY17 was a washout year for Mitrajaya, we expect FY18 to stage an earnings rebound. The stronger balance sheet post rights issue should place Mitrajaya’s construction division on a stronger footing to bag more job wins.

Valuation

• Our unchanged TP of RM1.15 is based on 12x 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 - 28 Feb 2018