MITRA registered 1Q19 CNL of RM4.3m, which came in below our/consensus expectations as losses were not anticipated this year. The losses incurred were mainly due to its construction division, which saw lower-than-expected finalised contract sum, which resulted in lower revenue coupled with high fixed overheads. No dividends declared, as expected. Cut FY19-20E earnings by 22-25%. Maintain UP, with lower SoP-driven TP of RM0.200 (from RM0.245).

Below expectations. MITRA registered 1Q19 CNL of RM4.3m, which came in below our/consensus expectations as losses were not anticipated this year. The losses incurred were mainly due to its construction division, which saw lower-than-expected finalised contract sum, which resulted in lower revenue coupled with high fixed overheads. No dividends declared, as expected.

Results highlight. YoY, 1Q19 slipped into a CNL of RM4.3m compared to CNP of RM19.2m; this was due to: (i) the steep reduction in revenue (-30%) coupled with high fixed overheads from its construction division, and (ii) increase in interest cost (+37%). QoQ, while 1Q19 revenue increased by 14%, it still registered CNL of RM4.3m compared to CNP of RM10.0m in 4Q18, as its construction overheads exceeded billings.

Outlook. MITRA’s outstanding order-book currently stands RM936.1m with a year’s visibility, and it is still actively tendering for projects in the local market. However, we opine that local job flows will be slow as we only expect mega projects to kick start earliest by year-end. As for its property development division, its unbilled sales stand at RM110.0m, also providing a year’s visibility.

Cut FY19-20E. Post results, we lower our FY19-20E earnings by 22- 25%, as we further lower our margin assumptions for its on-going construction jobs in view of higher fixed overheads.

Maintain UNDERPERFORM with a lowered SoP-derived Target Price of RM0.200 (from RM0.245) which implies FD FY20E PER of 8.0x vs. ascribed valuation range of 6.0-11.0x applied on small-mid cap contractors under our coverage, which reflects the following considerations; (i) uncertainty in terms of order-book replenishment, (ii) declining margins, and (iii) five consecutive quarters of disappointment.

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

Source: Kenanga Research - 29 May 2019