- Share price climbed 14% since our first report last month. So far, Mitrajaya’s stock price has gone up by 14% since our initial report on the stock about a month ago (6th May 2014; “Earnings Reached Inflection Point”). We believe the share price rally is not over yet. We deem at this current price, it is still “too cheap” for a high-double digit growth stock like Mitrajaya. The group’s net profit is estimated to grow 52% and 31% in FY14E and FY15E and it is only trading at a low 6.6x fwd-PER15 as compared to its peers of 8-10x.

- 1Q14 earnings within our expectation. Last week, Mitrajaya announced its 1Q14 earnings results. The group’s 1Q14 net profit of RM10.9m came in within our estimates, accounting for 29% of our FY14 full-year net profit forecast. YoY, the group’s 1Q14 net profit rose significantly by 57% driven by strong revenue recognition in both construction and property divisions. Over the past one year, Mitrajaya has secured more than RM700m jobs, which boosted its running orderbook to RM1.1b. QoQ, net profit declined by 19% due to slower billings in both construction and property divisions following festive season in 1Q14. Interestingly, construction division registered 10% PBT margins in 1Q14, higher than that of previous quarter of 9%.

- Our FY14-FY15 forecasts considered conservative. We maintain our earnings forecasts for now as the results came in within our expectations. Note that our forecasts are rather conservative as: (i) we only assume 8% PBT construction margins in our FY14-FY15 forecasts, versus the segment’s reported margin of 10% in 1Q14 and (ii) we only forecast 20% PBT property margins in FY14-FY15 versus 1Q14’s delivered PBT margin of 24%. Hence, if Mitrajaya could sustain the same PBT margins achieved in 1Q14 for the coming quarters, our core

net profit growth forecast of 52%-31% in FY14-FY15 would be conservative.

- Earnings outlook remains bright. With the RM1.1b outstanding orderbook and RM1.75b tenderbook, we believe earnings outlook for the group’s construction division remains bright in the foreseeable future. Meanwhile, the key catalyst for its property division will still be the launch of its new property project comprising 3-blocks of luxury condominiums in Wangsa Maju by end-2014. Despite the property cooling measures, we believe this project could achieve healthy take-up rates due to the strategic location (i.e adjacent to LRT and Wangsa Walk Mall).

- Maintain TRADING BUY with unchanged FV of RM1.13. We reckon that this under-researched stock is one of the small-cap stocks with good growth prospect worth considering given its visible earnings growth prospects. At current price, Mitrajaya appears to be very cheap as it is only trading at Fwd-PER15 of 6.6x against its small-cap peers average Fwd-PER of 8x-10x. Benchmarked at 9x fwd-PER on FY15 earnings, Mitrajaya is fairly valued at RM1.13. Maintain TRADING BUY, as the stock still offers another 35% potential upside.

Source: Kenanga