1QFY21 CNL of RM1.1m disappointed expectations due to slower billings, weaker margins and elevated steel prices. With fresh lockdowns impeding productivity and higher steel prices which would deplete margins for its on-going projects, the group is also faced with rising replenishment risks which could potentially see its order-book dry up by 2HFY22/1HFY23. Hence, FY21E/FY22E earnings are slashed to losses of RM14.1m/RM4.3m. Reiterate UP on lowered TP of RM0.205 (from RM0.215).

Below expectations. 1QFY21 core net loss (CNL) of RM1.1m (-127% QoQ) disappointed our FY21E full-year CNP estimate of RM17.6m due to slower-than-expected billings and weaker-than-anticipated margins derived from ongoing construction jobs. In light of the multiple fresh lockdowns coupled with the steel prices staying elevated longer-than- expected, earnings recovery is unlikely in the subsequent quarters. No dividends as expected.

Highlights. QoQ, 1QFY21 CNL of RM1.1m sank into the red from a CNP position of RM3.9m in 4QFY20 due to: (i) lower revenue (-16%) resulting from the lower quantum of jobs carried over, and (ii) weaker margin jobs at hand as the higher-margin Bank Negara Malaysia (BNM) contracts were completed last quarter in November 2020. YoY, 1QFY21 CNL was similar to 1QFY20 at RM1.1m despite a lower revenue (-18%).

Rising headwinds from: (i) lack of replenishments, (ii) elevated steel prices, and (iii) multiple lockdowns will sink the group into further losses for the subsequent quarters, in our opinion.

YTD, Mitra has replenished RM200m worth of jobs against our RM350m target for FY21. This brings their current outstanding order- book to RM554m which we find underwhelming as we foresee 2HFY22/1HFY23 revenue to take a steep plunge if Mitra does not secure more than our expected job replenishments of RM350m each year for FY21 and FY22.

Recent RM200m contract could possibly be a bane due to meteoric rise in steel prices. The 24-month building contract secured in February 2021 from Putrajaya Development S/B could sink the group into heavy losses if steel prices remains elevated (i.e. RM3,150- 3,300/tonne) given that Mitra has tendered aggressively to secure this fixed price job (without any price variation clause). We anticipate large steel requirements at the mid-stage of this project i.e. 6-18 months into the job.

Property remains weak with focus to clear completed inventories worth RM192m. While unbilled sales stood at RM42m, we note that a bulk of this (c.50%) is attached to its Wangsa 9 Phase 2 project which currently has poor take-up rates (8%) as sales have stagnated for the past two years. Hence, we do not expect progress billings from this project to be significant as we believe Mitra will keep construction pace minimal to avoid undesirable cash burns to its balance sheet.

Earnings outlook. In view of the fresh lockdowns and factoring for higher steel prices, we slash FY21-22E earnings from a profit position of RM17.6m/RM9.8m to a loss position of RM14.1m/RM4.3m.

Maintain UNDERPERFORM with lower TP of RM0.205 (from RM0.215) after rolling valuation base year forward pegged to unchanged 0.25x FY21E PBV (-1.5SD). We find Mitra’s current situation undesirable as they would either have to: (i) bid aggressively to secure jobs at the expense of thin margins (or potential losses) for job continuity to service operating/financing expenses or (ii) have its construction order-book dry up by 2HFY22/1HFY23 – dragging the group into losses.

Source: Kenanga Research - 1 Jun 2021