1H18 CNP of RM16.5m came in sharply below both our and consensus estimates, accounting for 20%/34% of full-year estimates. No dividends declared as expected. We cut FY18-19E earnings by 38-23% as we lower FY18-19E replenishment targets to RM400-600m and reduce construction EBIT margins from 6% to 4%. Post results, we downgrade MITRA to UNDERPERFORM (from MP) with a lowered SoP-derived TP of RM0.395.

Below expectations. 1H18 CNP of RM16.5m is below both our/consensus estimates making up 20%/34% of full-year estimates respectively. The weak performance stemmed from: (i) lower-than- expected revenue and margins from the construction segment partially due to festive seasons coupled with some of its on-projects at only preliminary stages, and (ii) weaker contribution from South Africa as all vacant stands and completed houses were fully sold in 2017. We derive our CNP after stripping out; (i) additional compensation gains worth RM10.3m from forced land acquisition at Pengerang, and (ii) disposal gains of 35%-owned associate of RM0.75m. No dividends declared, as expected.

Results highlight. 1H18 CNP was down 65% YoY dragged by lower revenue (-21%) and decline in operating margins to 7.1% (-2.2ppt) due to lower billings from both its construction and property development division. 2Q18 CNP of RM3.0m was down 90% QoQ due to a sharp decline in revenue (-29%) and drastically lower EBIT margins in both construction and South Africa segments.

Lower FY18-19E replenishment targets. YTD, MITRA has secured RM100m worth of jobs making up only 12.5% of our FY18 targeted replenishment of RM800m. In light of this, we reduce our FY18-19E replenishment target to RM400 and RM600m respectively. Its current outstanding order-book stands at RM1.30b providing 2-year visibility. For its property division, unbilled sales stood at RM165.1m from existing on-going projects, namely 'Wangsa 9 Residency' and 'Affordable Home - Seri Akasia.

Cut FY18/19E earnings. Post results, we slash our FY18-19E earnings by 38-23% after; (i) reducing average construction EBIT margins from 6% to 4% and, (ii) lowering FY18-19E replenishment targets to RM400- 600m, respectively (from RM800m).

Downgrade to UNDERPERFORM (from MP) with a lowered SoP- derived TP of RM0.395. Post earnings adjustment, we lower our SoP- derived TP of RM0.475 to RM0.395 based on FY19E FD PER of 7.0x on its construction division, in line with small-mid cap contractors valuation range of with 7.0-12.0x PER. We believe our downgrade in rating is justifiable given MITRA’s miss in earnings and absence of near-term re-rating catalyst due to the uncertainties clouding the construction sector.

Upside risks for our call are: (i) higher-than-expected margins, and (ii) better-than-expected billings from construction works and property segment.

Source: Kenanga Research - 29 Aug 2018