1H16 CNP of RM46.9m was inline with our and consensus estimates at 45% and 48%, respectively. No dividends declared as expected. Thus, we make no changes to FY16-17E earnings. Maintain OUTPERFORM call with a higher SoP-derived TP of RM1.79 (previously RM1.77) after rolling forward valuation base year for its construction division to FY17.

Within expectations. 1H16 CNP of RM46.9m was in line with our and consensus forecasts representing 45% and 48% of estimates, respectively. No dividends were declared as expected.

Result Highlights. 1H16 CNP of RM46.9m was up 32% YoY underpinned by: (i) 11% increase in top line as a result of higher construction billings (+14%), (ii) improvement in construction EBIT margins of +1.4ppt driven by better cost controls, and (iii) lower effective tax rate (-2ppt). 2Q16 CNP of RM28.4m improved 54% QoQ underpinned by a 26% increase in revenue, improved margins from construction (+5.5ppt) and lower share option expense (-97%). The increase in revenue was attributed to higher construction billing (+36%) as a number of projects have already moved towards advanced billings stage.

Construction outlook. Currently, MITRA’s outstanding order book stands at RM1.49b providing earnings visibility for another c.1.5 years. Year-to-date, MITRA has secured RM503m worth of contracts, making up 63% of our RM800m order book assumption with a remainder of RM297m to be achieved. We feel our replenishment target is achievable given the existing c.RM2.0b tender book in hand.

Property prospects. Within its property segment, MITRA’s unbilled sales of c.RM160.0m from Wangsa 9 and 280 Park Homes provide visibility for another 1.5 years. Meanwhile, its South Africa division will see unbilled sales of Rand67m (RM20m) recognised progressively upon completion of the transfer of ownership by FY16.

No changes to earnings. We make no changes to our FY16 and FY17 earnings forecasts of RM105.7m and RM114.4m, respectively.

Upgrade in Target Price to RM1.79. Post-results, we maintain OUTPERFORM with a higher SoP-derived target price of RM1.79 (previously RM1.77) after rolling forward our valuation base year for its construction division to FY17E. Our TP implies 11.8x FY17 FD PER, which is in line with small-mid cap contractors’ targeted Fwd. PER range of 9-13x.

Risks to our call include lower-than-expected margins, delay in construction works, lower-than-expected order book replenishment and lower-than-expected property sales.

Source: Kenanga Research - 19 Aug 2016