Mitrajaya has a slice of West Coast Expressway

Mitrajaya Holdings Bhd (Dec 28, RM1.26)

Reiterate outperform call with an unchanged target price (TP) of RM1.49: Yesterday, Mitrajaya Holdings Bhd announced that they secured a contract worth RM183.4 million from West Coast Expressway Sdn Bhd for the construction and completion of civil works for Section 2 of the West Coast Expressway from the South Klang Valley Expressway interchange to the Shah Alam Expressway interchange, slated for completion 30 months from the site possession.

Post award, Mitra’s year-to-date (YTD) wins currently stand at RM920 million, surpassing our RM800 million financial year ending Dec 31, 2016 (FY2016) targeted replenishment by 15%. Nonetheless, we remain “neutral” on the award as we are currently at the tail-end of FY2016 and the award is in line with our FY2017 target of RM800 million — bearing in mind that billings from the award is only expected to kick in from FY2017. We note that the YTD wins are still in line with management’s FY2016 replenishment target of RM1 billion. Assuming profit before tax margins of 8%, we expect the contract to contribute around RM4.4 million to the bottom line per annum.

Currently, Mitra’s outstanding order book stands at RM1.68 billion, providing earnings visibility for another around 1.5 to 2 years. Going forward, we believe our FY2017 replenishment order book of RM800 million is achievable on the back of around RM2 billion tender book. However, we note that job margins might be slightly compromised in view of the competitive landscape due to the slowdown in the property market.

Post award, we make no changes to our FY2016-FY2017 earnings estimates. Our TP implies 11 times FY2017 fixed deposit price-earnings ratio (PER), which is in line with small-mid cap contractors’ targeted forward PER range of 9 to 13 times. Risks to our call include (i) lower-than-expected margins, (ii) delay in construction works, (iii) lower-than-expected order book replenishment and (iv) lower-than-expected property sales. — Kenanga Research, Dec 28

This article first appeared in The Edge Financial Daily, on Dec 29, 2016. Subscribe to The Edge Financial Daily here.