FY17 CNP of RM70.6m is within our/consensus expectations, accounting for 100%/103% of full-year estimates. A 2.0 sen final dividend declared for FY17 in line with our estimate. Maintain our FY18E CNP while introducing FY19E CNP of RM109m. Reiterate OUTPERFORM with an unchanged SoP-derived TP of RM1.20/1.03.

Within expectations. FY17 CNP of RM70.6m is within our/consensus expectations, accounting for 100%/103% of full-year estimates. A 2.0 sen final dividend was declared for FY17, in line with our 2.0 sen estimate.

Results highlight. FY17 CNP was down 27% YoY despite the higher revenue (+21%) due to weaker construction PBT margin of 4% (-8ppt) as; (i) they incurred losses on their RAPID project, and (ii) increased costs for construction materials, i.e. steel and labour. 4Q17 CNP of RM17.3m declined 19% QoQ mainly due to weaker revenue (-10%) from their construction, property and South Africa division. We highlight that construction revenue declined by 6% due to major jobs, i.e. MK22 and SPRM having major construction stages completed in 3Q17.

Strong order-book replenishment visibility. Moving forward, we believe MITRA is backed by a strong flow of contracts possibly from: (i) Bank Negara Malaysia (BNM) – given MITRA’s close working relationship with BNM which recently acquired a tract of land (22.5ha) from the government for RM2.0b to develop education and training facilities, (ii) OSK’s “Ryan and Miho” (GDV of RM756m) condominium project at Section 13 given that MITRA is currently working on OSK’s PJ Midtown project (RM293m contract value) which is within the vicinity, (iii) LRT3 station sub-packages, (iv) Rapid infrastructure jobs, and (v) ECRL/HSR project as they favour non-urban viaduct packages over urban viaducts packages, i.e. MRT/LRT3. On the back of the potential contract flows and a stronger balance sheet post rights issuance, we are positive and hence targeted FY18E replenishment target of RM1.2b. Currently, outstanding construction order-book stands at RM1.7b providing visibility for 1.5-2.0 years while its property unbilled sales stands at RM180.0m.

Maintain FY18E numbers and introduce FY19E earnings. Post results, there are no changes to FY18E CNP of RM105m while we introduce FY19E CNP of RM109m. Our FY19E CNP is backed by FY19E replenishment target of RM1.2b.

Valuations. Reiterate OUTPERFORM with an unchanged SoP-derived cum/ex TP of RM1.20/RM1.03. We believe our valuation is fair as it implies FY18E PER of 9.0x, in line with our applied target of 8-13x for small-to-mid cap contractors. We like to highlight that MITRA is our 1Q18 top pick and it is currently trading at highly compelling PER* of 6.9x FY18E vs. small-to-mid cap peers which are currently trading at Fwd. PER of 8.4-13.5x.

Key downside risks for our call are: (i) lower-than-expected margins, and (ii) delays in construction works.

Source: Kenanga Research - 28 Feb 2018