MITRA reported 9MFY19 CNL of RM47.2m, which is way below expectations compared with our full-year net profit estimate of RM2m and consensus’ 13.7m. The construction segment was hit mainly by lower finalised contract sums. No dividend was declared. We have slashed our FY19-20E earnings to net loss of RM84m in FY19 and RM104m in FY20. Maintain Underperform with a lower TP of RM0.11 (from RM0.20) based on the adjusted Price-to-Book valuation methodology.

Way below expectations. MITRA reported 9MFY19 CNL of RM47.2m, which came in way below our/consensus expectations of full-year net profit of RM2m/RM13.7m. The poor result was essentially dragged by the construction business, which was hit by lower finalised contract sums upon account finalisation with clients. No dividend was declared as expected.

Results’ highlight. YoY, 9MFY19 slipped into a CNL of RM47.2m compared to CNP of RM34.6m. While the property division contributed lower pretax profit of RM19.8m (versus RM35.4m in 9MFY18), the construction segment was hit with a pretax loss of RM65.4m (versus a pretax profit of RM11.1m previously). QoQ, the Group’s net loss doubled from RM14.5m in 2QFY19 to RM28.3m in 3QFY19. This was mainly attributable to the construction division which reported a pretax loss of RM34.8m in 3QFY19 compared with a pretax loss of RM19.7m in 2QFY19.

Outlook. Outstanding construction order-book currently stands at RM853m as replenishment of jobs has been slow with contract wins of RM430m since 2018. Hence, we reckon MITRA will be facing challenging times ahead.

Slashed FY19-20E earnings. Post results, we have adjusted our forecasts to a net loss of RM84m (from a net profit of RM2m) for FY19 and RM104m (from a net profit of RM7m) for FY20 as we expect the construction segment to remain in the red.

Maintain UNDERPERFORM with a lower Target Price of RM0.11 (from RM0.20). With no earnings clarity in sight, we have applied a P/BV multiple of 0.17x (-1.5SD below its historical mean, to reflect the challenging outlook) after imputing expected forward losses on its latest BV per share to derive our revised TP of RM0.11.

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 - 28 Nov 2019