Mitrajaya has secured a RM99.9m contract for construction of 7-storey private hospital. With the latest job win, orderbook is now estimated at RM1.4bn, implying a cover ratio of 1.4x. We remain cautious on the macro job flow outlook following the new government’s review on mega projects. Maintain earnings forecast as YTD construction job wins still within our full year target of RM250m. Maintain SELL with unchanged TP of RM0.38 which is pegged to 7x P/E multiple to mid-FY19 earnings. The domestic construction industry landscape is expected to remain challenging and we expect continued margin pressure due to more competitive private sector jobs following reduction of government spending on infrastructure. Moreover, the weakness in property market further dampens the company’s property division prospect.

NEWSBREAK

Hospital building contract. Mitra announced that it has been awarded RM99.9m hospital building contract from IMU Education Sdn Bhd for the construction of a 7- storey private hospital with 1 level basement and a 6-storey podium carpark. The work is expected to commence in October 2018 and completed within a period of 27 months.

HLIB’s VIEW

Second construction job win. This is the second construction job win for the company which brings the YTD sum to RM203m. This brings Mitra’s orderbook to c.RM1.4bn which translates to 1.4x cover on FY17 construction revenue.

Cautious on job flow outlook. Following the change in government post GE14, we have turned cautious on the overall macro job flow outlook for the construction sector. HSR, MRT3 and ECRL have been shelved while LRT3 and MRT2 have been downsized due to review of mega projects by federal government. 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

Forecast. Maintained as YTD job win is still within our orderbook replenishment assumption of RM250m.

Maintain SELL, TP: RM0.38. Maintain SELL rating with unchanged TP of RM0.38. TP is pegged to 7x P/E multiple to mid-FY19 earnings. The domestic construction industry landscape is expected to remain challenging and we expect continued margin pressure due to more competitive private sector jobs following reduction of government spending on infrastructure. Moreover, the weakness in property market further dampens the company’s property division prospect.

Source: Hong Leong Investment Bank Research - 10 Oct 2018