MITRA registered 1H19 CNL of RM18.8m, which came in below our/consensus expectations. 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 91-69%. Maintain UP, with an unchanged TP of RM0.200 as we switch to Price-to-Book methodology.

Below expectations. MITRA registered 1Q19 CNL of RM18.8m, 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, 1H19 slipped into a CNL of RM18.8m compared to CNP of RM29.5m; 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 (+22%). QoQ, while 2Q19 revenue fell 22%, with CNL widened by 239% (low base effect), as its construction overheads exceeded billings.

Outlook. MITRA’s outstanding order-book currently stands RM815.8m 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 RM89.7m, also providing a year’s visibility.

Cut FY19-20E. Post results, we cut our FY19-20E earnings by 91-69%, as we further lower our margin assumptions for its on-going construction jobs in view of higher fixed overheads.

Maintain UNDERPERFORM with an unchanged Target Price of RM0.200 as we switch from Sum-of-Parts to Price-to-Book in which we ascribe 0.22x to its FY20E BVPS which reflects the following considerations; (i) uncertainty in terms of order-book replenishment, (ii) declining margins, and (iii) six 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 - 30 Aug 2019