Period

3Q15/9M15

Actual vs. Expectations

9M15 core net profit (CNP) of RM62.3m came in within our expectation at 79% of our full-year forecast but below consensus’ expectation at only 67%.

Aside from results, MITRA also made a separate announcement that it has secured a contract worth RM186.4m with its JV partner Syarikat Ismail Ibrahim Sdn Bhd for the civil, infrastructure works and interconnecting storm water drainage and utilities for RAPID project from PRPC Utilities and Facilities S/B (refer overleaf for details).

Dividends

None as expected.

Key Results Highlights

QoQ, 3Q15 revenue declined by 4.9% to RM231.3m, mainly due to reconciliation adjustment from Malaysian Accounting Standard (percentage completion method) against South African Accounting Standard (actual revenue recognition method) for the South African investment division. Despite the softer topline, CNP rose 11.8% to RM25.8m, mainly due to: (i) projects with better margin that secured since 2014 (EBIT margin added 2.9ppt to 15.1%), and (ii) lower effective tax rate (-3ppt to 24%).

YoY, 9M15 revenue recorded significant jump of 65.5% to RM636.1m, mainly attributable to higher construction billings (+93.7%), although it was partially offset by reduction in property segment’s revenue (-37.2%), on lower recognition from existing on-going Wangsa 9 Residency currently at initial construction stage. That said, CNP rose 65.6% to RM62.3m correspondingly, mainly supported by: (i) improvement in construction EBIT margin (+3.5ppt to 12.9%), and (ii) higher EBIT margin from South African investment division (+16.8ppt to 45.8%).

Outlook

We reaffirm our positive view that the construction division should be able to spearhead and sustain MITRA’s earnings growth momentum in coming years, driven by government 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 RM1.39b provides visibility for at least two years.

While its property division will be driven by its Wangsa 9 project (GDV: RM680m), we expect some slowdown in the property segment which is expected to remain lacklustre in FY16. However, we do not expect the group to be greatly affected, given that the property segment contributes <10% of 9M15 PBT, in contrast to its main earnings contributor, the construction segment (>80% of 9M15 PBT).

Change to Forecasts

Unchanged.

Rating

Maintain OUTPERFORM

Valuation

Maintain OUTPERFORM with an unchanged TP of RM1.63. Our TP implies 10.9x Fwd-PER, which is within the small-mid cap contractors’ Fwd-PER range of 7-13x. We like this stock as it provides PBT margin of >10%, which is superior compared to small-mid cap peers’ average PBT margin of 9.3%. Given that the stock is still trading at single-digit valuation, i.e. FY16E PER of 8.2x, it offers a potential total upside of 35.5%, including dividend yield of 2.1%.

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 - 26 Nov 2015