News

Last Friday, MITRA announced that it has entered into an agreement with Optimax Healthcare Services Sdn Bhd to divest its 51% stake (1.3m ordinary shares of RM1.00) in Optimax for a total cash consideration of RM5.1m.

The proceeds from the proposed divestment will be allocated for working capital purposes and repayment of debts which is expected to be completed by 2Q16.

Comments

We were not surprised with the proposed Optimax divestment as management had disclosed such intention since April 2015. We are positive with the divestment which could allow the group to focus on their core business i.e. construction.

To recap, Optimax had always been a non-core business to MITRA, expected to only contributes c.1.1% to its FY15E net profit. The divestment of Optimax will provide MITRA a small gain of RM1.49m in FY16.

Post divestment, we are expecting its net gearing to inch down to 0.28x (previously 0.29x as of 9M15). While the net gearing is slightly higher than the peers’ average of 0.22x, it is still within a comfortable level.

Outlook

YTD, MITRA has yet to secure any contracts out of their RM1.0b target orderbook for FY16. Nonetheless, the group’s current outstanding orderbook of RM1.48b will provide visibility for at least two years.

Its property division will be driven by its Wangsa 9 project (GDV: RM680m) and upcoming project in Puchong Prima (GDV: RM1.5b). While we expect some slowdown in the property segment, we feel that this should not impact the group significantly. Both projects have strong selling points, being strategically located adjacent to LRT stations providing convenience and connectivity.

Forecast

We reduced our FY16E Core Net Profit by 1.3% to RM97.8m, after excluding Optimax’s earnings contribution from our estimates. However, our FY16E Net Profit remains unchanged due to the one-off disposal gains of RM1.49m.

Rating

Maintain OUTPERFORM

Valuation

Post divestment, we maintain OUTPERFORM and a Target Price of RM1.63 after including the disposal proceeds of RM5.1m and excluding Optimax from our SoP-based calculations. Our TP implies 11x Fwd. PER, which is inline with small-mid cap contractors’ Fwd-PER range of 7-13x. Furthermore, the stock is currently trading at single-digit valuation offering a potential total upside of 48%, including dividend yield of 2.2%.

Risksto Our Call

Lower-than-expected margins.

Delay in construction works.

Lower-than-expected orderbook replenishment.

Lower-than-expected property sales.

Source: Kenanga Research - 10 Feb 2016