News

Yesterday, MITRA announced a contract award worth RM157.3m from Putrajaya Home Sdn Bhd for the construction and completion of 800 units of PPA1M apartments inclusive of two blocks of multi-level car parks and common facilities located in Precint 17, Putrajaya. The construction period would take up to 36 months, whereby completion is expected by 1Q19.

Comments

This marks the first contract bagged by MITRA for FY16. Nonetheless, we are neutral on this contract as it is well within our estimates - making up 22.5% of our FY16 replenishment target of RM700m. We deem our assumptions to be conservative as compared to management’s FY16 target of achieving an orderbook replenishment of RM1.0b. To recap, MITRA only secured RM386.0m worth of jobs back in FY15 vis-à-vis their initial target of RM1.0b, due to delays in awards of projects bidded.

Assuming PBT margins of 7%, the contract could contribute c.RM2.8m to bottomline for the next three years.

Outlook

This contract award will boost MITRA’s outstanding orderbook to RM1.63b (previously RM1.48b) providing earnings visibility for at least two years. We reiterate our positive stance on MITRA, underpinned by government’s spending on infrastructure projects and development of affordable housing projects under the 11MP.

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 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

No changes to earnings.

Rating

Maintain OUTPERFORM

Valuation

Maintain OUTPERFORM with a target price of RM1.63 based on our SoP-based calculations. Our TP implies 11x Fwd. PER, which is inline with small-mid cap contractors’ Fwd-PER range of 7- 13x. The stock is currently trading at single-digit valuation offering a potential total upside of 41%, 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 - 24 Feb 2016