9M18 CNP of RM23.4m came in below our estimate, accounting for 46% of full-year estimate. No dividends declared as expected. Cut FY18-19E earnings by 25-23% as we lower FY18-19E replenishment targets to RM250-400m and reduce average construction EBIT margin from 4% to 3%. Post results, downgrade to UNDERPERFORM (from MP) with a lowered SoP-derived TP of RM0.290 (from RM0.360).

Below expectations. 9M18 CNP of RM23.4m came in below our estimates, accounting for only 46% of our full-year estimates. Consensus figures are not available. This is the third consecutive quarter of disappointment. The weak performance was due to: (i) lower- than-expected revenue and margins from the construction segment, with some of its on-going projects still at preliminary stages, and (ii) weaker contribution from South Africa as all vacant stands and completed houses were fully sold in 2017. No dividends declared, as expected.

Results highlight. QoQ, 3Q18 CNP of RM5.0m was up marginally 1% in line with a flattish revenue (-1%) and relatively stable CNP margin of 2.5%. 9M18 CNP of RM23.4m was down 56% YoY dragged by lower revenue (-24%) and a decline in PBT margin to 6.8% (-1.9ppt). This was mainly due to slower work progress for current on-going projects and the completion of major projects (MACC headquarters, Residensi 22 at Mon’t Kiara and Raffles American School) in 2017.

Reduce FY18-19E replenishment targets. MITRA’s YTD wins amount to RM200m, making up 50% of our FY18 targeted replenishment of RM400m. With roughly one more month left to FY18, we see limited possibility of a third win for MITRA. As such, we reduce our FY18-19E replenishment targets by 38%-33% to RM250m-RM400m. Its current outstanding order-book stands at RM1.20b providing 1-1.5 year visibility. While we believe near-term order-book replenishments may be uncertain, we expect billings from the construction segment to pick up as on-going projects move into more mature stages. Unbilled sales for its property division stood at RM140.2m from its existing on-going projects, namely 'Wangsa 9 Residency' and 'Affordable Home - Seri Akasia.

Reduce FY18-19E earnings. Post results, we lower our FY18-19E earnings by 25-23% after: (i) reducing average construction EBIT margins from 4% to 3%, (ii) lowering FY18-19E replenishment targets to RM250-400m, and (iii) tweaked construction billings timing. However, we intend to meet with management for further clarity and may review our estimates post meeting.

Downgrade to UNDERPERFORM (from MP) with a lowered SoP- derived TP of RM0.290 (from RM0.360) which implies FD FY19E PER of 6.9x on its construction division, which is at the lower end of our ascribed valuation range of 6.0-11.0x applied on small-mid cap contractors under coverage. We believe our downgrade in rating is justifiable given MITRA’s continuous disappointment in earnings, slower-than-expected contract replenishments 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, (ii) better-than-expected billings from construction works and property segment, (iii) greater-than-expected contract wins.

Source: Kenanga Research - 29 Nov 2018