Mitrajaya Holdings Bhd (May 12, RM1.37)

Maintain buy with an unchanged target price of RM1.95: Mitrajaya Holdings Bhd recently announced that it had won a contract to build a higher-learning institution in Kuala Lumpur for RM160 million. The job is scheduled to be completed within two years (May 2019). This contract is Mitrajaya’s second job win for the year. Recall that last month, Mitrajaya secured a RM274 million Bank Negara Malaysia-related job for “A Centre of Excellence” building in Kuala Lumpur. Overall, this brings year-to-date (YTD) job wins to RM434 million.

Mitrajaya’s order book stood at RM1.5 billion as at the end of financial year 2016 (FY16). Assuming a burn rate of RM220 million in the first quarter ended March 31, 2017, coupled with YTD job wins of RM434 million, this would place its current order-book level at RM1.7 billion. This translates into a healthy cover ratio of two times on FY16 construction revenue.

Management is gunning for RM1 billion in new job wins for FY17 (43% achieved), in line with our target. This will largely comprise building-related jobs and some infrastructure works as well. Lower-than-expected order-book replenishment could slow down its earnings growth potential that has been robust over the last three years. As YTD job wins of RM434 million are still within our full-year assumption of RM1 billion, we leave our earnings forecast unchanged.

Despite its earnings growing at a compound annual growth rate (CAGR) of 69% over the last three years, Mitrajaya continues to deliver commendable results. Valuations are undemanding with FY16 and FY17 price-earnings ratios of 8.4 times and 7.7 times on the back of two-year projected earnings CAGR of 10%. — Hong Leong Investment Bank Research, May 12

This article first appeared in The Edge Financial Daily, on May 15, 2017.

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