Mitrajaya targets RM1b revenue for FY16

by **Cals** Thu 25 Jun 2015, 18:28

Mitrajaya targets RM1b revenue for FY16

Mitrajaya Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)
(June 24, RM1.91)
Initiate coverage with an outperform rating and a target price of RM2.35: While we expect the group to approach the RM1 billion revenue mark for financial year 2016 (FY16), we forecast Mitrajaya’s earnings to grow by 27% to 47% in FY15E to FY16E driven mainly by the group’s record high order book of RM1.9 billion achieved early this year coupled with sustainable margins.
Year-to-date, Mitrajaya has replenished RM230 million worth of new contracts and management is targeting to secure another RM770 million before the end of the year, to make up its total target of RM1 billion. Conservatively, we only forecast the group to secure RM700 million this year. Hence, there could be further upside potential to our current earnings estimates.
Among the key projects under the 11th Malaysia Plan that Mitrajaya can participate in are the light rail transit 3 (LRT3) and the development of 606,000 units of affordable houses. We believe Mitrajaya stands a good chance of securing those projects due to its track record. Mitrajaya is currently building LRT extension stations. The group also has been building affordable houses for the government in Putrajaya. It was appointed the main contractor to build the RM230 million Perumahan Penjawat Awam 1Malaysia public apartments in Putrajaya earlier this year.
We like the fact that Mitrajaya’s project in Wangsa 9 (Phase 1) achieved a 70% take-up rate despite the challenging property market environment. We believe this is due to the strategic location of the land which is adjacent to an LRT station. Mitrajaya has another piece of land (15 acres or 6.07ha) in Puchong Prima, which is also adjacent to an upcoming LRT station. Total gross development value stands at RM1.5 billion, consisting of a mixed development that is to be linked to the LRT station.
The group’s net gearing ratio stands at 0.2 times. This is relatively lower than that of the construction sector’s average net gearing of 0.5 times.
Despite the solid investment merits, the stock is still trading at a forward price-earnings ratio (PER) of only 7.4 times. This is relatively cheaper than the PER range of 10 to 14 times of small- and mid-cap contractors. If the stock trades at 10 times forward PER, the stock’s market cap will be as high as RM1.1 billion, on par with Hock Seng Lee Bhd ([You must be registered and logged in to see this image.] Financial Dashboard), Muhibbah Engineering Bhd ([You must be registered and logged in to see this image.] Financial Dashboard), WCT Bhd ([You must be registered and logged in to see this image.]Financial Dashboard) and the upcoming initial public offering of Sunway Construction Sdn Bhd. — Kenanga Research, June 24
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This article first appeared in The Edge Financial Daily, on June 25, 2015.