Highlights 

Stepping up its game.  Mitrajaya  has successfully grown its job  wins  from  less  than  RM100m  p.a.  during   FY08-10  to over  RM500m  currently.  New  job  wins  YTD  are  at  a  record RM547m,  surpassing last year’s high of RM501m.     

Orderbook  in  a  sweet  spot.  Mitrajaya’s  orderbook  of RM1.3bn  implies  a  strong  cover  of  6x  FY13  construction revenue,  vis -à-vis  the  sector  average  of  2.1x.  Its  orderbook profile  is  also  relatively  “young”  with  75%   comprising  jobs that  were  sec ured  less  than  a  year  ago,  mitigating  cost overrun  risks.

More  to  come.  Backed  with RM2bn in outstanding tenders, Mitrajaya aims to hit an orderbook target of RM1.5bn by year end,  implying  that  another  RM200m  worth  of  jobs  are forthcoming.  These  tenders  are  mainly  building  works  for developers,  both private  and government  related.

Beneficiary  of  LRT  Line  3.  Budget  2015  announced  the implementation  of  the  LRT  Line  3  (RM9bn).  We  view Mitrajaya  as  a  potential  beneficiary  via  station  works (RM720-960m)  given  its  experience  wit h  the  ongoing  LRT extensions.

Property  booster  from  Wangsa  9.  Mitrajaya  will  soon  be launching  the  Wangsa  9  condos  (GDV:  RM650m)  in Wangsa  Maju.  We  expect  encouraging  take  up  rates  given its  strategic  location  (opposite  Wangsa  Walk  Mall)  and LRT connectivity (Sri Rampai  LRT station 150m  away).

Other  divisions.  These  include  (i)  its  South  Africa investment  which  is  a  low  risk  and  debt  free  self-sustaining model  of  selling  land  and  (ii)  51%  stake  in  Optimax, Malaysia’s  largest  standalone  eye  specialist  which  recently turned  back to the black.

Risks

• Execution  risk,  rising  material prices, project implementation delays, weak property market and political risks.

Forecasts

• We  expect  FY14  core  earnings  to  almost double to RM48m (+92% YoY) and FY15 to see a record RM60m  (+24% YoY).
• Our forecast implies superior  3 year earnings  CAGR of 40%.

Rating

• Initiate with BUY, RM1.52 TP (+ 55%  upside)
• Mitrajaya  is  an  under  researched  hidden  gem  which  offers superior  earnings  growth  at  cheap  valuations  of  8x  and 6.5x FY14-15  P/E and decent yields of 3-5%.

Valuation

• Our TP is based on 10x FY15 earnings,  inline with our target valuation parameter  used for  small cap contractors. For  an  alternate valuation perspective,  at  current  market capitalisation,  investors  buying Mitrajaya  would be getting its land  at  48%  discount  to  market  value  and  all  its  core business  of  construction,  property development and Optimax (not to mention a golf course in South Africa)  for free!

Source: Hong Leong Investment Bank Research - 5 Nov 2014