Wangsa 9 Residency

Mitrajaya Holdings Bhd (Aug 12, RM1.72)

Maintain outperform with target price (TP) of RM2.35: Our TP implies 9.4 times price-earnings ratio (PER), which is relatively cheaper than that of small- to mid-capitalisation contractors’ forward-PER range of 10 to 14 times. Given that the stock is still trading at single-digit valuation with financial year 2016 (FY16) PER of 7 times, this offers potential total upside of 36.4%, including dividend yield of 2.6%.

First half FY15 (1HFY15) net profit of RM36.5 million came in within our expectations at 46%, but below consensus’ expectations at 36%.

Quarter-on-quarter, second quarter FY15 (2QFY15) revenue of RM243.2 million and net profit of RM23.1 million jumped 50.5% and 72.4% respectively, mainly due to higher progressive recognition from construction projects secured since 2014 (earnings before interest and tax [Ebit] margin +1.5% to 12.2%), and higher contribution from South Africa investments (Ebit margin +5.6% to 40.6%).

Year-on-year, 1HFY15 net profit rose 48.9% to RM36.5 million, mainly attributable to increase in revenue by 69.5% due to higher construction billings. That said, the improvement in earnings is also well supported by the improvement in construction Ebit margin (+0.7% to 11.6%), and higher Ebit margin from its South Africa investment division (+13.1% to 38.2%).

The construction segment contributed 74% of the group’s Ebit in 1HFY15, which grew by 110.7% to RM39.7 million.

We reaffirm our view that the construction division should be able to sustain itself for the next three years at least, driven by government’s spending on infrastructure and affordable housing projects for the next five years under the 11th Malaysia Plan.

The group’s current outstanding order book of RM1.75 billion should also be sustained by the affordable housing projects carried out by private developers.

We expect the property segment to continue to grow, supported by its existing projects such as Wangsa 9 Residency, which has a gross development value (GDV) of RM680 million, as well as the upcoming project in Puchong Prima, with a GDV of RM1.5 billion.

We also expect stable earnings from South Africa land sales. Going forward, management expects this division to contribute more, at RM10 million to RM15 million per annum driven by higher value land sales, as well as plans to sell residential houses there. Additionally, the division’s unbilled sales of 98.6 million South African rand (RM30.73 million) are expected to be recognised progressively by end-2015.

FY15 to FY16 net profit estimates remain unchanged at RM78.9 million to RM99.8 million, respectively.

The risks to our call include lower-than-expected margins, delay in construction works, lower-than-expected order book replenishment, and lower-than-expected property sales. — Kenanga Research, Aug 12

This article first appeared in the digitaledge Daily on Aug 13, 2015. Subscribe here.

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