This article first appeared in Capital, The Edge Malaysia Weekly, on October 19 - October 25, 2015.

Builder and property developer Mitrajaya Holdings Bhd (fundamental: 1.50; valuation: 2) was awarded a RM52.2 million infrastructure contract on Oct 9. The job at Pahang Technology Park in Gambang, which involves building arterial roads, drainage, sewerage and water supply systems, as well as electrical and telecommunications works, and landscaping, is scheduled for completion in April 2017.

Closing at RM1.22 last Tuesday, the stock was already up 41.9% in less than two months from a low of 87 sen on Aug 26. But several research houses think there is still sizeable upside for the stock.

Mitrajaya’s issued warrant — Mitra-WC — could provide a leveraged alternative for investors who wish to ride the company’s bullish prospects over the medium term. It has a strike price of 60 sen and one-to-one conversion ratio. It expires on July 4 next year.

A quick check on Bloomberg shows that there is a 46.7% upside potential for Mitrajaya from its Oct 13 close of RM1.22.

At zero premium, Mitra-WC would theoretically be worth RM1.19 if its mother share hits the consensus target price of RM1.79 — that’s double the warrant’s closing price of 59.5 sen on Oct 13. The warrant was trading at a 2.1% discount to the underlying share that day.

With the smallish job win, Hong Leong Investment Bank (HLIB) Research estimates Mitrajaya’s order book to stand at RM1.8 billion, which implies a healthy order book cover ratio of 4.9 times, way above its peers’ average of 2.7 times.

“Mitrajaya remains our top pick among the small-cap contractors as it offers a compelling case of robust growth prospects at inexpensive valuations,” the research firm’s analyst, Jeremy Goh, says in an Oct 12 report. HLIB Research has a “buy” on Mitrajaya with a target price of RM1.95.

Kenanga Research is neutral on the latest contract win by Mitrajaya as it is within its order book replenishment assumption of RM700 million in its financial year ending Dec 31, 2015 (FY2015).

“We are expecting more job flow in the coming months, given that Mitrajaya’s tender book is mostly focused on Putrajaya where the group has an excellent track record for the past 10 years. However, we do not rule out that replenishment could come in slower than expected due to timing differences,” the research team says in an Oct 12 note.

Kenanga Research maintains an “outperform” recommendation on Mitrajaya with an unchanged target price of RM1.63.

The counter is currently trading at 5.2 times FY2016 earnings. Other small-cap contractors fetch between 7 and 13 times forward PER.

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