News

• Rights issue, bonus issue and warrants. To recap, back in Oct 2017, Mitrajaya proposed to undertake (i) rights issue on a 1 for 5 basis, (ii) attached bonus issue of 1 bonus share for every 2 rights and (iii) 1 free warrant (Warrants E) for every 2 rights.

• Fixes rights price and warrants exercise. The rights price has been fixed at RM0.59 while the Warrants E will have an exercise price of RM0.94. Based on yesterday’s share price close of RM0.845, this translates to a theoretical ex rights price (TERP) of RM0.80. The rights price is at a 26% discount to yesterday’s share price close on a TERP basis.

Comments

• Proceeds raised. The rights issue would raise total proceeds of RM81.3m under the minimum case scenario and RM92.9m in the maximum case. Upon exercise, the free Warrants E would raise another RM64.8m under the minimum case and RM74m in the maximum case. For our analysis, we will use the minimum case scenario as the existing Warrants D are out of the money.

• To pare down debts. Given Mitrajaya’s strong orderbook growth of in the past few years, its retention sum and receivables have increased significantly which was in turn, funded via debt. The proceeds from the rights issue will mainly be used to repay debts at the construction division (i.e. Pembinaan Mitrajaya Sdn Bhd). With a stronger balance sheet at the construction division level, Mitrajaya will be on a stronger footing when bidding for new jobs as this is a factor taken into consideration by clients.

Risks

• EPS dilution resulting from the rights issue.

Forecasts

• Post rights issue, Mitrajaya’s net gearing is expected to reduce from 43% (as at 4QFY17) to 28% on a proforma basis.

Rating

Maintain BUY, TP: RM1.15 (TERP)

• With recovery in its 2HFY17 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 TP (TERP) of RM1.15 is based on 12x P/E tagged to FY18 earnings.

Source: Hong Leong Investment Bank Research - 13 Mar 2018