9M16 CNP of RM72.1m came in within consensus (72%) but below ours at 68% of full year estimates. Negative deviation stemmed from weaker than expected take up rates and margins for their property division. No dividends, as expected. Reduce FY16-17E earnings by 5%-11%. Maintain OP with lower SoP-derived TP of RM1.49 (previously RM1.79) after switching property SoP valuations to 5x FY17 PER (from 60% discount to RNAV).

Below expectations. 9M16 CNP of RM72.1m came in within consensus expectations (72%) but below our full-year estimates at 68%. The negative deviation stemmed weaker than expected take up rates and margins for their property division. No dividends declared as expected.

Result Highlights. 9M16 CNP was up 17% YoY mainly due to 10% increase in top line as a result of (i) higher construction billings (+12%) and (ii) higher property recognition (+28%) as construction of on-going Wangsa 9 property project picks up pace. 3Q16 CNP was down 11% QoQ despite a marginal increase in revenue by 2% due to (i) compression in construction EBIT margins (-2.2ppt) underpinned by the progression of lower margin projects secured at the beginning of the year, i.e. PPA1M and Section 13 mixed development and (ii) higher financing costs (+56%).

Construction outlook. Currently, MITRA?s outstanding order book stands at RM1.35b providing earnings visibility for another c.1.5 years. Year-to-date, MITRA has secured RM577m worth of contracts, making up 72% of our RM800m order book assumption with a remainder of RM223m to be achieved. On the back of c.RM2.0b tenderbook, we believe our target is achievable either by year end/early FY17.

Weak property sales. Due to MITRA?s product prices of >RM1.0m coupled with the tightening bank loans, take up rates for their completed projects (280 Parks Homes, Kiara 9) has been slow with c.RM320m of unsold inventory. Meanwhile, their ongoing Wangsa 9 residency project sales remain weak with phase 2 registering only 45% take up since launch in Nov-14. Wangsa 9?s unbilled sales of RM156m will provide visibility for another 1.5 years. Meanwhile, its South Africa division will see unbilled sales of Rand29m (RM9.1m) recognised progressively upon completion of the transfer of ownership in FY16- FY17E.

Reduced earnings. Post results, we lower our FY16-17E core earnings by 5%-11% to RM99.9m-RM102.1m, respectively. This is after accounting for (i) lower take up rates for their completed and on- going property projects i.e Kiara 9, Wangsa 9, 280 Park Homes and (ii) lower margins assumptions (-6ppt) for their property division.

Maintain OP with lower TP of RM1.49 (from RM1.79) after switching our Property SoP valuation to 5.0x FY17 PER (from 60% discount to RNAV). We feel that rebasing valuations to PER method is fair as small-and-mid-cap property counters are currently trading at PE range of 5.0-7.0x. Our TP implies 11.0x FY17 FD PER, which is in line with small-mid cap contractors? targeted Fwd. PER range of 9- 13x. Despite the reduction in TP, MITRA still offers an upside of 22%. Hence, we maintain our OP call.

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 - 29 Nov 2016