News

Last Friday, MITRA announced that it has secured a RM52.2m main infrastructure contract at Pahang Technology Park in Gambang, Pahang from the East Coast Economic Region Development Council (ECERDC) Package 1B – 1st Level Infraworks.

The infrastructure work spanning 78 weeks is expected to be completed by April 2017, covering arterial road, drainage, sewerage, water supply system, external electrical, external telecommunication and landscaping.

Comments

We are NEUTRAL on this contract as it is within our FY15E orderbook replenishments assumption of RM700m. As of YTD, MITRA has secured c.RM282.2m worth of contracts, making up 40.3% of our FY15 new contracts assumption of RM700m. Going forward, we are still expecting more job flows in coming months, given that MITRA’s tenderbook is mostly focused in Putrajaya where the group has excellent track records for the past ten years. However, we do not rule out that replenishment could come in slower than expected due to timing differences. Nonetheless, we still believe that our target is still achievable, as the group has a historical track record of securing over RM500m jobs per annum for the past three years.

Moreover, our assumption is conservative as compared to management’s target, which is still optimistic on achieving a target of RM1.0b by end-FY15, supported by its tenderbook of RM2.0b. Hence, we are keeping our orderbook replenishment assumptions for now, pending further updates from management.

Assuming 5% PBT margin, this contract will contribute RM1.2m (1.2% of FY16E earnings) per annum to MITRA’s net profit until FY17.

Outlook

We reaffirm our positive view that the construction division should be able to sustain at least for the next three years, driven by government’s spending on infrastructure projects and development of affordable housing projects for the next five years under 11MP. Furthermore, the group’s current outstanding orderbook of RM1.55b provides visibility for at least two years.

While its property division will be driven by its Wangsa 9 project (GDV: RM680m) and upcoming project in Puchong Prima (GDV: RM1.5b) by end-2015, we expect some slowdown in the property segment, given the current drag in property sales. However, we believe this should not impact the group significantly, given that both projects’ attractive locations which are adjacent to LRT stations, hence providing convenience and connectivity, are strong selling points.

Forecast

No change to our FY15-16E earnings estimates.

Rating

Maintain OUTPERFORM

Valuation

Maintain OUTPERFORM with unchanged Target Price of RM1.63. Our TP implies 7.3x Fwd-PER, which falls at the lower end of the small-mid cap contractors’ Fwd-PER range of 7-13x. Given that the stock is still trading at single-digit valuation, i.e. FY16E PER of 5.2x, it offers a potential total upside of 42.5%, including dividend yield of 2.2%.

Risks to Our Call

Lower-than-expected margins

Delay in construction works

Lower-than-expected orderbook replenishment

Lower-than-expected property sales

Source: Kenanga Research - 12 Oct 2015