1HFY21 CNL of RM0.6m is considered within our FY21E CNL projection of RM14.1m as 2HFY21 should come in weaker on higher losses at its construction arm due to FMCO and elevated steel prices. Due to an overall lack of investor interest and challenging prospects, we are ceasing active coverage on MITRA. Consequently, the stock is assigned a Not Rated (from UNDERPERFORM) with our last TP of RM0.205.

Within expectations. 2QFY21 core net profit (CNP) of RM0.5m helped narrow 1HFY21 core net loss (CNL) to RM0.6m. We consider this within our FY21 loss projection of RM14.1m as we expect 2HFY21 to come in weaker on higher losses at its construction division due to FMCO and higher material costs. No dividends as expected.

Highlights. QoQ, 2QFY21 CNP of RM0.5m improved from a CNL of RM1.1m due to lower losses at its construction arm. YoY, 1HFY21 CNL of RM0.6m sunk into the red (from CNP of RM3.4m) due to weaker margin jobs being executed.

YTD, Mitra has won a building jobs worth RM200m against our RM350m target for FY21. This brings their current outstanding order book to RM518.5m which we find underwhelming as we foresee 2HFY22/1HFY23 revenue to take a dip if Mitra does not secure more than our expected job replenishments of RM350m each year for FY21 and FY22.

Elevated steel prices will hit Mitra’s bottom-line. The RM200m building contract secured in Feb 2021 (24-month tenure) is likely to sink the group into losses as steel prices remains elevated (i.e. RM3,100- 3,250/tonne). Note that Mitra has tendered aggressively back in late- 2020 to secure this fixed-price contract before the exponential rise in steel price. Huge steel requirement is anticipated at the mid-stage of this project i.e. 6-18 months into the job.

Property division remains weak with focus to clear completed inventories worth RM185m. While unbilled sales of RM44m, we note that a bulk of this (c.50%) is from 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. This would consequently lead to a delay in delivery for the existing buyers; hence, we expect Mitra to incur liquidated ascertained damages (LAD) for this development.

At this juncture, 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.

All in, we cease active coverage on MITRA, given subdued investor interests and challenging prospects ahead. Consequently, the stock is assigned a Not Rated (from UNDERPERFORM) with our last TP of RM0.205 pegged to 0.25x PBV (-1.5SD below mean).

Source: Kenanga Research - 9 Sept 2021