Recently, we visited MITRA and met up with its management and came away feeling NEUTRAL as there are no major updates from the group. Having said that, we think that the group’s prospects remain attractive at this juncture, due to strong outstanding orderbook of RM1.6b with two years of earnings visibility coupled with a sizeable tenderbook of RM4.1b. Post meeting, we maintain our OUTPERFORM recommendation with unchanged TP 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 singledigit valuation, i.e. FY16E PER of 5.4x, it offers a potential total upside of 38.9%, including dividend yield of 2.1%.

Outstanding orderbook worth RM1.6b. The outstanding orderbook of RM1.6b is contributed by six large projects which is expected to last for next two years i.e. FY16 and FY17 (refer overleaf).

Targeting to secure RM1.0b for FY15 and FY16. YTD, MITRA has secured c.RM291m worth of contracts, making up 41.6% of our FY15 new contracts assumption of RM700m. While our FY15E and FY16E target of RM700m each is relatively conservative as compared to management’s unchanged target of RM1.0b, they remain optimistic in meeting their target by end 2015 or early 2016. We understand that the remaining RM700m will come from infrastructure works with contract sizes of between RM200m and RM300m. Assuming these contracts materialise by FY15 and MITRA secures up to RM1.0b new contracts, this could offer potential upward revision in our earnings estimates by 6% for FY16.

Sizeable tenderbook of RM4.1b. To date, MITRA has submitted tenderbook amounted to RM4.1b, mainly for building works (RM3.0b) and infrastructure project (RM1.1b). The project types include affordable housing project, LRT3 project (connecting Bandar Utama to Shah Alam and Klang), and infrastructure projects (SUKE, DASH and Pan Borneo Highway). While we were surprised by MITRA’s move to venture into Sarawak Pan Borneo Highway project, management guided that they have set up their first subsidiary branch in Kuching, Sarawak as an entry point to touch base with Sarawak construction projects.

Property market likely to remain uninspiring in FY16. Property sales for MITRA’s current projects, 280 Park Homes in Puchong Prima and Wangsa 9 residency softened in FY15, no thanks to the tighter lending policy and hike in property prices. YTD, total unbilled sales is RM198.3m and it is expected to last for the next three years. In view of the current unexciting property market, Phase 3 of Wangsa 9 Residency is targeted to be launched after 1H16. While we believe the property market’s outlook is expected to remain lacklustre in FY16, we do not expect the group to be greatly affected, given that its property segment contributed a mere 7.9% of 1H15 PBT, in contrast to its main earnings contributor, construction segment (76% of 1H15 PBT).

Blue Valley Golf and Country Estate in South Africa growth is on track. Among its overseas property launched (Extension 72, 74 and 75), 70% of its launches were sold while the remaining is expected to be fully sold by 2016. The management expects its overseas property division to generate annual profit of RM15m, which is in line with our expectation.

Dividend likely to be maintained at 3.3 sen per share (pre bonus issue: 5.0 sen per share). Historically, the Group has been paying dividend of 1.3 sen per share (pre bonus issue: 2.0 sen per share). Since FY14, MITRA increased its dividend payout to 3.3 sen per share (2.7% dividend yield) which is likely to be maintained for now, which is slightly higher than our forecast of 2.5 sen per share (2.1% dividend yield).

Maintain OUTPERFORM with unchanged TP 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. We like this stock as it provides PBT margin >10%, which is superior compared to small-mid cap peers’ average PBT margin of 7.5%. Given that the stock is still trading at single-digit valuation, i.e. FY16E PER of 5.4x, it offers a potential total upside of 38.9%, including dividend yield of 2.1%. 

Source: Kenanga Research - 29 Oct 2015