Mitra announced that it had agreed with Medini Development Sdn Bhd to the mutual termination of contract for superstructure works of an office tower development. Termination of this contract will result in reduction of Mitra’s orderbook by RM112.2m as part of the works for this contract has started and has been recognised. Mitra’s orderbook currently stands at RM824m, translating to a subdued 1.18x 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 FY19-21 earnings by 3-9%. Maintain SELL with lower TP of RM0.23 (from RM0.25). TP is pegged to 7x P/E multiple to FY19 earnings.

NEWSBREAK

Mutual termination of Medini office contract. Mitra announced that it had agreed with Medini Development Sdn Bhd (MDSB) to the mutual termination of contract for superstructure works of an office tower development on Lot PTD 187625, Mukim Pulai, Daerah Johor Bahru, Johor. This is because MDSB decided to put on hold the development of the project until the market condition stabilises. The contract value is RM159m and is originally expected to be completed by January 2019.

HLIB’s VIEW

Dwindling orderbook level. Termination of this contract will result in reduction of Mitra’s orderbook by RM112.2m as part of the works for this contract has started and has been recognised. Mitra’s orderbook currently stands at RM824m, translating to a subdued 1.18x 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, as evident by this contract termination.

Forecast. In view of this contract termination, we cut FY19-21 earnings by 8.9%, 5.7% and 3.4% respectively after factoring in reduction of outstanding orderbook.

Maintain SELL, TP: RM0.23. We maintain our SELL rating with lower TP of RM0.23 (from RM0.25) following the earnings cut. TP is pegged to 7x P/E multiple to FY19 earnings.

Source: Hong Leong Investment Bank Research - 3 Jun 2019