Tuesday, January 11, 2011

Regarding Mitrajaya

Here's the posting: Sudden surge in Mitrajaya share price - speculative or bargain?

Well, I am aware of what happened. :)

CIMB released the report much later in the morning yesterday and Mitrajaya and other small construction stocks got the much needed boost.

Clearly, the CIMB report is the key factor and sometimes we can comment on the report, the pros and the ... err ... but however, in the midst of a rather more bullish market sentiments, it's difficult to ask Ms. Reason to talk to Ms. Sentiment.

Here's the report.

And yeah.. the rather more bullish market sentiments. Let me reproduce the current chart of Mitrajaya.


And that's a nice 'little' uptrend eh?

Hehe... your posting title says 'speculative' or 'bargain'. Err... sorry but realistically, if you are reading this ONLY now and you don't have this stock and you are going to buy it, let's be honest, lol... you are a chaser.

lol... just slight humour, if I may. Yeah, why so serious yo?!

It's not like I am giving some voodoo or bad luck to the stock. ( Seriously, I don't have such voodoo skills ( and here's a stunner - I cannot lie! I wish I do. LOL! Can I have? Please? For my next Christmas pressie? I be good this year! ).

Anyway... on a more serious note, the stock is on a serious uptrend and chasing the stock (or any stock) does have its risks.

Now of course, needless to say, the key issue now is ... can buy some? or does the stock have any more bunny hop in it?

As posted in the posting Sudden surge in Mitrajaya share price - speculative or bargain?, Mitrajaya did not have a good track record. Which if one compares the BIG picture, one can clearly see that from 2003 to to 2009... the stock was in a terrible stock.

But the stock as one can see from the above chart, started picking up in 2009.

And Nov 2009, was very much a key, if you asked my flawed opinion.

Quarterly rpt on consolidated results for the financial period ended 30/9/2009

And from the business segmentals, one could clearly see that property development, is the key driving factor.

The company said the following:

  • For this current quarter under review, the Group’s revenue has increased by RM32.4 million (72%) to RM77.6 million as compared to a revenue of RM45.23 million in the preceding year’s corresponding quarter. The increase in revenue is mainly derived from the progressive sales recognition from the Group's property projects. The Group's property division has achieved better sales performance in the current financial year compared to preceding year.
    On the back of higher revenue contributed by the Group's property division, the Group has recorded a significant high profit before tax of RM28.4 million in the current quarter as compared to a loss of RM0.07 million in the preceding year’s corresponding quarter. Apart from that, construction division has also contributed higher profit from its construction projects as a result of the improved profit margin .

And some would argue that it would make sense to be IN the stock then, back in Nov 2009.

And on 26th Nov 2009, Mitra closed at 46 sen.

And some who had been following the stock, would have noted that the company had been buying a lot of its shares.

So here we are today. :=)

Yesterday, CIMB wrote..

  • Our screen of small-cap contractors drew our attention to Mitrajaya, which remains at compelling CY11-12 P/Es of only 3-3.4x valuations despite its share price surge over the past week. The stock is also trading below its NTA of RM2.26. There is more than 100% share price upside to our RNAV estimate of RM3.30/share, 52% of which comes from its landbank, with the jewel being the 100 acres in South Africa.

And one of the KEY factors according to CIMB research is...

The land bank in South Africa has tripled in value.

And then... the financials bit...

This is where I think, it's debatable.

The massive jump in earnings happened on 26th Nov 2009, when Mitrajaya announced its 2009 Q3 earnings. And as per the company own notes, it said the key factor was 'the progressive sales recognition from the Group's property projects'.

Mitrajaya's last reported earnings was in Nov 2010. That's only 5 quarters of 'impressive' earnings.

Of course, the pessimistic would ask (why are they pessimistic? well, after all, Mitrajaya did have a rather poor earnings track recod) could the earnings be sustainable? And they would be quick to point out that the last reported earnings showed some potential weakness.

But hey.... the market is HOT la... this is no time to have a pessimistic mindset. So said Mr. Optimistic. :P

  • Valuation

    Revival of sector catalyst should be positive for the stock
    . For 2011, we continue to expect catalysts for the construction sector to revolve around two key themes, i.e. the 10MP and ETP. This is likely to lead to further positive newsflow in the form of contract awards as the evaluation of tenders for most projects has been completed over the past three months. While projects such as the RM36bn KL MRT, RM7bn LRT extension/upgrade and RM18bn Klang Valley river rehabilitation will be key mega jobs for the sector, we do not discount the rollout of smaller-scale projects over the next few months. This should boost investor sentiment on the construction sector, which would be positive for the share prices of smaller construction players like Mitrajaya. Although Mitrajaya’s share price has already surged 34% or 42 sen since the start of the year, we believe there is still significant share price upside as it is in the early days of its recovery.

    Compelling valuations from RNAV perspective. Even after the share price surge over the past week, valuations are still compelling. CY11-12 P/Es are only 3-3.4x assuming that the group achieves EPS of 46.7 sen in FY11 and 51.3 sen in FY12. The stock is also trading below its NTA of RM2.26. In our RNAV calculations, we have imputed the value of its outstanding landbank which makes up 52% of RNAV, with the jewel being the 100 acres in South Africa. We have also assumed a sustainable level of construction profit and tagged to it our target market P/E of 14.5x, in keeping with other construction stocks. RNAV contribution from the quarry and healthcare businesses is less than 2%.

    Stock could be worth RM3.30. Adding these up, we arrive at an indicative FD RNAV/share of RM5.50. Applying our usual 40% discount for small-cap construction companies, we estimate that Mitrajaya could be worth RM3.30/share, which works out to 7x CY12 P/E. The 40% discount applied to Mitrajaya’s RNAV is the steepest among the contractors and compares to 10% for WCT and MRCB and 20% for Mudajaya’s RNAV. This is justifiable given Mitrajaya’s smaller market capitalisation. Mitrajaya’s foreign shareholdings stood at 4% as at end-10 and could rise given investors’ renewed interest in this play on Malaysian construction. The main potential re-rating catalyst is contract awards. Another positive is its attractive dividend yield of over 6% which is the highest among the construction stocks in our coverage.

    Attractive on other measures too. Apart from being cheap on a P/E standpoint, Mitrajaya is also attractive from P/BV perspective. The stock is trading below its book value of RM2.26 (0.5x P/BV) compared to 0.9-1.5x for other small/mid cap peers. This also compares to the 0.7-4.1x P/BV range for bigger construction stocks under our coverage. Mitrajaya’s ROE of 16-20% is on par with Gamuda, IJM and WCT while its dividend yield is the highest. The stock is also trading at a steep 71% discount to RNAV compared to 13-26% for construction stocks under our coverage. Total landbank makes up 52% of RNAV which implies that at the current share price of RM1.59, investors are buying into the stock and getting its land for free.

Land for free!


Where's my favourite Dire Straits track? Money for nothing and chicks for free! :P

The RNAV table from CIMB

The financial table from CIMB

As you can see... CIMB did NOT put in their earning estimate for Mitrajaya on the table. :P

Earlier bit, CIMB wrote...

  • assuming that the group achieves EPS of 46.7 sen in FY11 and 51.3 sen in FY12.

EPS of 46.7 sen.

The key thing to address, I think, is whether the estimate is way too optimistic or not.

Last year, from CIMB table, Mitrajaya made an earnings of 41.2 million or an EPS of 32.2 sen.

CIMB says an EPS of 46.7 sen for fy 2011.

Here's Mitrajaya last reported earnings: Quarterly rpt on consolidated results for the financial period ended 30/9/2010. It's current ytd 3 quarter earnings is a very impressive 40.945 million or an eps of 33.8 sen only. On an annualised basis, perhaps, Mitrajaya could be earning some eps of 45 sen for 2010.

So perhaps the EPS of 46.7 sen isn't too optimistic at all.

Err... so how?

So long posting... still awake ah?

ps: I have no idea if you could lose money in this stock, so there's no need to thank me. :=)


ronnie said...

Take a look at Success Transformer. Manufacturer of industrial lighting. Low PEs and great gross profit margins of about 25%.

Moolah said...

Posted b4 ronnie.

have a look here: Success Transformer

IINM Success Transformer's earnings had weakened after the listing of its subsidiary. ;)

value investing in malaysia said...

hi moola,

thanks for d detailed writeup!

mr reason will surface soon.