While we were positively surprised by its sizeable RM200m job replenishment which immediately exceeds our FY21E target of RM150m, we note that this comes on the back of aggressive tenders by the group which spells thin margins and little room for execution errors. Therefore, despite raising FY21E earnings by 16% to cater for this unexpected win, we keep our Underperform rating with unchanged TP of RM0.215 as we still foresee headwinds ahead for the group.

New job in Putrajaya. Yesterday, Mitra announced a RM200m job win from Putrajaya Development S/B to construct 10 levels of podium and external works at Plot 7MD7, Precinct 7, Putrajaya. The contract will last two years with expected completion in Feb 2023.

A positive surprise... We were positively surprised by this contract and its quantum given that: (i) Mitra’s last contract win was more than a year back in November 2019 and (ii) this contract alone has exceeded our FY21E replenishment forecast of RM150m for the group.

…but margins will be low. While this contract win has reduced the replenishment risks for Mitra in the immediate term, this comes on the back of aggressive tenders to sustain operations. Therefore, we believe the margins for this job would be skewed towards the lower-end with very little room for execution errors – or risk plunging into losses.

We have assumed a PBT margin of 4% for this new job; translating to bottom-line contribution of RM3m/annum. On a separate note, we highlight that the piling works for this job was actually done by Suncon – which was awarded back in March 2019 at RM39m contract value.

Still need more jobs to be comfortable. Post this win, Mitra’s outstanding order-book is lifted to c.RM600m (as of Dec 2020), providing revenue cover of slightly over a year. That said, on the back of tender book of c.RM1b, Mitra is still aggressively aiming for further job wins to provide job continuity as most of their existing jobs are completing in mid-2022.

Upgrade FY21E earnings by 16% to RM17.6m after imputing in higher FY21E contract replenishment of RM350m (from RM150m).

Maintain UP on unchanged TP of RM0.215 (based on 0.25x FY21E PBV). We remain cautious over Mitra’s prospects given the undesirable situation they are currently facing: - either (i) aggressively tender for projects to provide job continuity but face higher execution risks or (ii) see revenue take a plunge in 2H 2022 – dragging the group into losses.

Upside risks are: (i) higher-than-expected margins from construction, and (ii) stronger than expected sales for Wangsa 9.

Source: Kenanga Research - 10 Feb 2021