MITRA?s 1Q17?s CNP of RM18.9m is deemed broadly within our (19%) and consensus expectations (18%) as we note that the first quarter is typically a seasonally slower quarter for MITRA and we expect construction billings to pick up in the remaining part of the year. No dividends declared as expected. No changes to our FY17-18E earnings. Post results, downgrade to MP with unchanged SoP-derived TP to RM1.49.

1Q17 broadly inline. We deem 1Q17?s CNP of RM18.9m to be broadly within our (19%) and consensus expectations (18%) as we note that the first quarter is typically a seasonally slower quarter for MITRA and we expect construction billings to pick up in the remaining part of the year. No dividends declared as expected. We derive our CNP after stripping off RM9.9m gains on disposal of its Johor land.

Results highlight. 1Q17 CNP of RM18.9m increased marginally by +2% YoY on the back of increased construction revenue on higher billings (+49%) but with slightly weaker EBIT margins (- 1ppt). 1Q17 CNP was down 25% QoQ despite the increased revenue contribution from it construction segment (+9%) due to weaker EBIT margins (-6ppt) which we believe were due to higher recognition of lower margins projects secured in FY16. Balance sheet wise, we highlighted that MITRA?s net gearing has grown to high levels of 0.38x (vs 1Q16 net gearing of 0.26x).

Company outlook. Currently, MITRA?s outstanding order-book stands at c.RM1.73b, providing earnings visibility for another c.1.5-2.0 years. Jobs secured YTD at RM434m, which accounts for 54% of our RM800m target with a remainder RM366m to be achieved. We note that our replenishment RM800m is slightly more conservative against management?s target guidance of RM1.0b. For their property arm, unbilled sales stood at RM204m (mostly from Wangsa 9 residency) and expected to provide c.2.0 year visibility to the group. Meanwhile, its South Africa division will see unbilled sales of Rand24m (RM7.3m) recognised progressively upon completion of the transfer of ownership in FY17.

Maintain FY17-18E earnings. No changes to our FY17-18E earnings of RM102m and RM99m, respectively.

Downgrade to MP with an unchanged TP of RM1.49. Post results, we maintain MITRA?s SoP-derived TP of RM1.49 after rolling forward valuation base year for its construction and property segmental earnings. Note that we had also upgraded our property SoP valuations to 7x (from 5x) in line with the recent rerate of small-mid caps property counters which are currently trading at an average 7.1x FY18E PER. Given that MITRA?s share price has caught up with our valuations and risk-reward ratio no longer as compelling with no new catalyst ahead, we downgrade MITRA?s rating to MP (from OP). Our SoP-derived TP implies 11.4x FY18E FD PER, which we believe is fair given that it is in line with small-mid cap contractors? targeted Fwd. PER range of 9-13x and that MITRA?s FY17-18E margin of c.10% is also on par with our average peers? margins (KERJAYA, KIMLUN, HSL).

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 May 2017