Mitra has only managed to secure 1 new contract worth RM103m YTD. Its order book now stands at c.RM1.5bn, translating to 1.5x cover on FY17 construction revenue. Going forward we expect competition for private sector jobs will intensify as other contractors start bidding more aggressively within this space due to reduction in government spending on public infrastructure. For property division, its unbilled sales of RM176m (1.2x cover ratio) should provide buffer over the next 2 years. Maintain forecast. Maintain HOLD with unchanged TP of RM0.53. TP is pegged to 7x mid-FY19 earnings. Domestic construction industry landscape is expected to remain challenging and we do not expect a significant improvement in near term. Nonetheless, Mitra’s reasonable order book bala nce and unbilled sales enable it to ride through this short term turbulence.

Limited job win YTD. Mitra has only managed to secure 1 new contract worth RM103m YTD. Its order book now stands at c.RM1.5bn, translating to 1.5x cover on FY17 construction revenue. Mitra has bid for RM3bn worth of jobs comprising mostly building works (RM2.9bn) and the balance infrastructure project. Management is targeting to secure another RM900m worth of jobs for FY18. However, we maintain our order book replenishment assumption of RM250m given the limited job wins YTD and the slowing in contract flows following the change in government.

Cautious on job flows. Following the change in government post GE14, we have turned cautious on the overall macro job flow outlook for the construction sector. HSR and MRT3 have been shelved while terms of the ECRL are being renegotiated and LRT3 has been downsized due to review of mega projects. As a result, about RM105bn worth of local content of mega projects will be removed over the next 2 years based on our estimation. Although Mitra is less involves 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.

Property. Mitra is not spared from the weak property market as its Phase 3 Wangsa Residency development only managed to achieve 5% of take up rate since its soft launch in February 2018 and the mere 41% take up rate for its 280 Park Homes development. In efforts to boost take up rates, management is actively tapping the overseas market and undertaking creative strategy such as rent-to-own scheme for its 280 Park Homes development. Nonetheless, we draw comfort in its overall unbilled sales of RM176m which implies a healthy cover of 1.2x on FY17 property revenue.

Forecast. Maintained as the meeting yielded no major surprises.

Maintain HOLD, TP: RM0.53. Maintain HOLD with unchanged TP of RM0.53. TP is pegged to 7x mid-FY19 earnings. The domestic construction industry landscape is expected to remain challenging and we do not expect a significant improvement in near term. Nonetheless, Mitra’s reasonable order book balance and unbilled sales enable it to ride through this short term turbulence.

Source: Hong Leong Investment Bank Research - 18 Jul 2018