Mitrajaya awarded contract for superstructure works at Medini, Iskandar

Maintain buy recommendation with an unchanged target price of RM1.95: Mitrajaya Holdings Bhd announced that it has been awarded a RM159.4 million contract for superstructure works for an office tower development at Medini, Iskandar.

The job was awarded by Medini Development with a contract duration of two years, to be completed by January 2019. With this job in the bag, Mitrajaya’s year-to-date job wins currently stands at RM736 million, which has surpassed last year’s sum of RM469 million.

We estimate its order book balance to stand at RM1.5 billion now, translating into a cover ratio of two times on financial year 2015 construction revenue.

It was recently reported in the Dec 12 issue of The Edge weekly that Mitrajaya is in the running for a RM400 million condominium job in Ara Damansara. Mitrajaya is said to have submitted the most competitive bid for the job. Should this materialise, the contract would boost Mitrajaya’s order book by 27% to RM1.9 billion.

Last week, Mitrajaya announced that it will be disposing of six acres (2.43ha) of its land at Pengerang, Johor. The disposal is on a compulsory acquisition basis for the development of the Rapid (Refinery and Petrochemical Integrated Development) project. As compensation, Mitrajaya will receive RM31.4 million.

Based on the land’s book value of RM10.40 per sq ft, the disposal gains are estimated at RM28.8 million. The disposal will reduce Mitrajaya’s net gearing from 35% to 30%. We are positive about this disposal as there is no development plans for the said land and it highlights the deep value of Mitrajaya’s landbank.

Risks, on the other hand, would include lower-than-expected order book replenishment, which could slow down its earnings growth potential that has been robust over the last three years. — Hong Leong Investment Bank, Dec 22

This article first appeared in The Edge Financial Daily, on Dec 23, 2016. Subscribe to The Edge Financial Daily here.