Mitrajaya Holdings Bhd (Oct 10, 39 sen)
Maintain sell with an unchanged target price (TP) of 38 sen: Mitrajaya Holdings Bhd announced that has secured a RM99.9 million contract for construction of a seven-storey private hospital.
The domestic construction industry landscape is expected to remain challenging and we expect continued margin pressure due to more competitive sector jobs following reduction of government spending on infrastructure. Moreover, the weakness in the property market is further dampening the company’s property division prospects.
Mitrajaya announced that it has been awarded a RM99.9 million hospital building contract from IMU Education Sdn Bhd for the construction of a seven-storey private hospital with one level of basement and a six-storey podium car park. The work is expected to commence in October and be completed within a period of 27 months.
This is the second construction job win for the company which brings the year-to-date (YTD) sum of RM203 million. This brings Mitrajaya’s order book to around RM1.4 billion which translates into 1.4 times cover on financial year 2017 (FY17) construction revenue.
Following the change in government post GE14, we have turned cautious on the overall macro job flow outlook for the construction sector. The high-speed rail, mass rapid transit Line 3 (MRT 3) and East Coast Rail Link (ECRL) have been shelved while the light rail transit Line 3 and MRT2 have been downsized due to the review of megaprojects by federal government. As a result, about RM105 billion worth of local content of megaprojects will be removed over the next two years based on our estimation. Although Mitrajaya was less involved with public infrastructure jobs relative to private sector jobs in the past, we reckon competition for private sector jobs will intensify going forward as other contractors start bidding more aggressively within this space.
We maintained that YTD job wins are still within out order-book replenishment assumption of RM250 million.
The TP is pegged at seven times price-earnings multiple mid-FY19 earnings. The domestic construction industry landscape is expected to remain challenging and we expect continued margin pressure due to more competitive private sector jobs following reduction of government spending on infrastructure. Moreover, the weakness in property market has further dampen the company’s property division prospects. — Hong Leong Investment Bank Research, Oct 10
This article first appeared in The Edge Financial Daily, on Oct 11, 2018.