Yesterday, MITRA announced that they made a compulsory land sale measuring 24,146sqm (259.9k sf) located in Mukim Pengerang, JB for RM31.5m. We are positive on the sale as: (i) net gearing is expected to reduce to 0.29x, and (ii) MITRA will register a gain on disposal of RM28.8m. Make no changes to FY16-17E CNP of RM99.9m-RM102.1m. Reiterate OP with unchanged SoP-derived TP of RM1.49.

News. Yesterday, MITRA announced that they made a compulsory land sale measuring 24,146sqm (259.9k sf) located in Mukim Pengerang, JB for RM31.5m (RM121psf) to the Johor State Government in order for the state to proceed with the development of Pengerang Petroleum Complex. The affected land comprises 55.3% of MITRA?s undeveloped land bank in that area.

Positive on sale. Despite being forced into the sale, we are positive on it as there are currently no ongoing development plans for the affected land and the sale would immediately reduce MITRA?s net gearing to 0.29x (from 0.35x as of 3Q16). Additionally, the sale also registers RM28.8m gain of disposal on the back of the lands? existing book value of RM10.4psf (vis-�-vis selling price of RM121.0psf).

Company 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 tender book, we believe our target is achievable either by year-end/early FY17.

Earnings estimates. Post land sale, we factor in the gain on disposal of RM28.8m into FY16E earnings - lifting MITRA?s FY16 net profit to RM130.1m (from RM101.4m). Nonetheless, we make no changes to FY16 CNP of RM99.9m as we choose to omit this one-off gain on disposal from our core NP. No changes to FY17E earnings.

Maintain OUTPERFORM with unchanged TP of RM1.49 based on SoP. Our TP implies 11.0x 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 - 09 Dec 2016