MITRA announced its second contract win for the year, the construction of a 7-storey private hospital worth RM100m. Neutral as it falls within our FY18E replenishment target. Maintain FY18-19E replenishment targets of RM400-600m. No changes to earnings estimate. Upgrade to MARKET PERFORM (from UP) with an unchanged SoP-derived TP of RM0.395.

Second win of the year. Yesterday, MITRA announced its second win of the year - a RM100m contract for the construction of a private hospital in Bukit Jalil from IMU Education Sdn. Bhd. The scope of work includes construction of a 7-storey private hospital with 1 level basement and a 6-storey podium carpark.

Neutral on the wins. We remain neutral on the win as it falls within our FY18E replenishment targets of RM400m. Assuming EBIT margins of 6%, we expect the contract to contribute c.RM1.9m/annum to bottom- line for the next two years. To recap, YTD, MITRA has secured RM200m worth of contracts – accounting for 50% of our FY18E target. We believe MITRA is on track to achieve the remaining RM200m. Hence, we maintain our FY18-19E replenishment targets of RM400- 600m.

Outlook. We believe the contract win represents MITRA’s continued efforts to secure new projects, while also highlighting its ability to secure contracts amidst an increasingly competitive environment. Meanwhile, its current outstanding order-book stands at RM1.4b providing 2-year visibility, driven mainly by contracts from the private sector. For its property division, unbilled sales stood at RM165.1m providing 1-year visibility from existing on-going projects, namely ‘Wangsa 9 Residency’ and ‘Affordable Home – Seri Akasia’.

Upgrade to MARKET PERFORM (from UP) with an unchanged SoP-derived TP of RM0.395. We upgrade MITRA to MARKET PERFORM which we believe is timely, given the sharp drop in share price since late-August (-18%). We base our TP on FY19E FD PER of 7.0x on its construction division, in line with 7.0-12.0x PER of small-mid cap contractors while ascribing FY19E FD PER of 5.0x on its property division, below small-mid-cap property developers’ average of 19.6x. We pegged MITRA towards the lower end of our valuation range given its: (i) implied FY19 PER OF 6.7x which is close to its 5-year -1SD level, (ii) earnings miss, and (ii) absence of near-term re-rating catalyst due to the uncertainties clouding the construction sector.

Downside risks for our call are: (i) lower-than-expected margins, and (ii) slower-than-expected billings from construction works and property billings.

Source: Kenanga Research - 10 Oct 2018