9MFY20 CNP of RM6.5m came below our expectations, only accounting for 46% of our full year estimates due to the weaker-than-expected construction margins as a result of Covid-19 SOP compliance. No dividends as expected. Reduce our FY20/21E estimates by 26%/13% after incorporating lower construction margins and reducing FY20E replenishment to nil from RM50m. Maintain MP on unchanged TP of RM0.215.

Below expectations. 3QFY20 core net profit (CNP) of RM3.2m brought 9MFY20 CNP to RM6.5m – below our earlier full year expectations of RM14m. The disappointment stems from weaker-thanexpected construction margins as the impact from the pandemic is still being felt through Covid-19 SOP compliance. No dividends as expected

Highlights. QoQ, 3QFY20 CNP of RM3.2m was down 30% despite the higher revenue (+158%) recorded as (i) effective tax rate was higher by 23ppt to 53% and (i) construction PBT margins deteriorated by 9ppt to 5%. The drop in construction margins is attributed to management’s decision to revise its construction budget higher for their ongoing jobs given the pandemic situation.

9M20 CNP of RM6.5m improved YoY against a loss position of RM47.2m as (i) its construction division did not suffer any cost overruns like 9MFY19 and also thanks to the (ii) lower finance cost (-59%) from lower borrowing levels. Gross borrowings level in 9MFY20 was 40% lower at RM157m vs 9MFY19’s level of RM260m.

3Q20 outstanding orderbook continues to deteriorate to RM513m (slightly > 1x cover) from RM600m in 2Q20 due to the lack of new jobs arising from the competitive market landscape. YTD, contract wins is still nil against our initial replenishment target of RM50m.

Property division remains lacklustre with focus being targeted to clear completed inventories worth RM202m at (i) Wangsa 9 Phase 1, (ii) 280 Parkhomes and (iii) Kiara 9. While unbilled sales stood at RM48m, we note that a bulk of this is attached to its Wangsa 9 Phase 2 project which currently has poor take up rates of 8%. Hence we do not expect progress billings from this project to be significant as we think it unlikely Mitra will speed up its construction as this would lead to undesirable cash burns to its balance sheet.

Revise FY20/FY21 earnings lower by 26%/13% to RM10m/15m on: (i) weaker construction margins and (ii) lower FY20E replenishment target of nil (from RM50m). Maintain FY21E replenishment of RM150m.

Maintain MARKET PERFORM on unchanged TP of RM0.215 based on unchanged 0.25x FY21E PBV (-1.5SD). While we are anticipating a blanket construction sector rerating as the Covid-19 recovery narrative grows in prominence, we remain cautious over Mitra’s prospect as it still faces replenishment risk on the back of a dwindling order-book – which will stifle the earnings recovery ahead.

Downside risks are: (i) lower-than-expected margins from construction, and (ii) slower-than-expected billings from construction and property.

Source: Kenanga Research - 26 Nov 2020