Mitra reported 1QFY19 core loss of RM4.3m (against core profits both QoQ and YoY) which were below our expectations and consensus. The surprise losses was mainly due to higher than expected operating expenses. Mitra’s orderbook currently stands at RM936m, translating to a subdue 1.34x cover ratio to FY18 construction revenue. We reckon that Mitra is not beneficiary of revived infrastructure jobs due to its focus on private sector building jobs. Cut FY19-20 earnings by 17-23%. Introduce FY21 earnings forecast of RM32.7m. Maintain SELL with lower TP of RM0.25 (from RM0.30). TP is pegged to 7x P/E multiple to FY19 earnings.

Below expectations. Mitra reported 1QFY19 results with revenue of RM185.6m (+14% QoQ, -28% YoY) and core losses of RM4.3m (against core profits both QoQ, and YoY), which is way below HLIB and consensus expectations. The surprise losses was mainly due to higher than expected operating expenses.

QoQ/ YoY. Bottom-line recorded core losses (versus core profits both QoQ and YoY) mainly due to lower contribution from all divisions.

Dwindling orderbook level. The losses recorded in this quarter is due to lack of on going construction projects which resulting in lower construction revenue. This coupled with similar amount of fixed operating costs and increased finance costs, has caused core losses which has been unseen for a long time. Mitra’s orderbook currently stands at RM936m, translating to a subdued 1.34x cover ratio to FY18 construction revenue.

Not benefiting from revived infrastructure jobs. Mitra is less involves with public infrastructure jobs relative to private sector jobs in the past and is expected to continue to focus on private sector building jobs going forward. As a result, we reckon that Mitra may not be a key beneficiary of revived infrastructure jobs. Moreover, persistent weakness of property market caused by oversupply issue further dampens the prospect in private sector building jobs in which Mitra is focusing on.

Forecast. In view of the surprised loss, we cut FY19-20 earnings by -16.7% and - 23.0% respectively after factoring in higher operating costs. We introduce our FY21 earnings forecast of RM32.7m.

Maintain SELL, TP: RM0.25. Given the results weakness, we maintain our SELL rating with lower TP of RM0.25 (from RM0.30) following the earnings cut. TP is pegged to 7x P/E multiple to FY19 earnings.

Source: Hong Leong Investment Bank Research - 29 May 2019