2QFY20 CNP of RM4.5m surpassed our expectations as it catapulted 1HFY20 to a CNP position of RM3.4m against our full-year loss estimate of RM29m. The positive deviation mainly stemmed from better cost management in its construction division which had been suffering from cost overruns for the past 1.5 years. Revise FY20/21E losses to profits of RM14/RM17m. Maintain MP on higher TP of RM0.215.

Above expectations. 2QFY20 core net profit (CNP) of RM4.5m was a positive surprise bringing 1HFY20 CNP to RM3.4m against our full-year loss expectation of RM29m. The positive deviation was due to better cost management in its construction division which led to better-than- expected margins. This is a rather commendable set of results given that the profits were achieved during the peak MCO quarter. No dividends as expected.

Highlights. QoQ, 2QFY20 CNP of RM4.5m improved against a RM1.1m loss despite a drop in revenue due to operational cost rationalisation at its construction segment resulting in improved segmental PBT margin of +16ppt and lower finance costs by 25%. 1H20 CNP of RM3.4m improved YoY against a loss position of RM18.8m as (i) its construction division did not suffer any cost overruns like 1HFY19 and also thanks to the (ii) lower finance cost (-58%) from lower borrowing levels.

In a better position to take on future challenges. With better cost management at its construction division, MITRA is poised to clock in better performance in FY20 as compared to FY19A which turned in a loss of RM48m. Nonetheless, it remains challenging to replenish its dwindling order-book from the lack of jobs in the market. Its current outstanding construction order-book of RM600m would only last them slightly over a year. YTD, contract wins is still nil against our replenishment target of RM50m.

2QFY20 net gearing improved further to 0.17x (from 0.21x in 1QFY20) on more retention sum received upon completion of projects without needing to fork out working capital for new projects (given dwindling order-book). Although in a way it is a positive that balance sheet is stronger, earnings’ visibility will remain lacklustre for the foreseeable future.

Revise FY20/FY21 earnings to core net profit (CNP) of RM14m/17m from loss position of RM29m/RM3m on: (i) better construction margins and (ii) lower financing costs.

Maintain MARKET PERFORM with a higher TP of RM0.215 (from RM0.20) based on unchanged 0.25x FY21E PBV (-1.5SD). While the group is slightly better off compared to its previous loss making years, it still faces replenishment risk amidst the current challenging period on the back of a dwindling order-book.

Source: Kenanga Research - 25 Aug 2020