,According to Kenanga Research, the RM200mil building contract that Mitrajaya secured in February 2021, with a 24-month tenure, will likely sink the construction company into losses as steel prices remain elevated at RM3,100 to RM3,250 per tonne.
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KUALA LUMPUR: Despite having substantial jobs on hand, elevated steel prices could weigh on Mitrajaya Holdings Bhd’s earnings.
According to Kenanga Research, the RM200mil building contract that Mitrajaya secured in February 2021, with a 24-month tenure, will likely sink the construction company into losses as steel prices remain elevated at RM3,100 to RM3,250 per tonne.
The research house noted that Mitrajaya had tendered aggressively 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 – six to 18 months into the job,” said Kenanga Research.
The research house said Mitrajaya’s property division remained weak. The focus is to clear completed inventories worth RM185mil.
While the group has unbilled sales of RM44mil, Kenanga Research noted that the bulk of this (50%) was from its Wangsa 9 Phase 2 project, which currently had poor take-up rates as sales had stagnated for the past two years.
“Hence, we do not expect progress billings from this project to be significant, as we believe Mitrajaya will keep the 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 Mitrajaya to incur liquidated ascertained damages (LAD) for this development,” said the research unit.
Kenanga Research opined that at this juncture, Mitrajaya’s current situation was undesirable, as it would either have to bid aggressively to secure jobs at the expense of thin margins (or potential losses) for job continuity to service operating or financing expenses, or have its construction order-book dry up by the second half (H2) of financial year 2022 (FY22) or H1 of FY23 – dragging the group into losses.
Mitrajaya posted a core net profit of RM500,000 for the second quarter ended June 30, 2021 (Q2 of FY21) compared with a core net loss of RM1.1mil in Q2 of FY20, due to lower losses at its construction arm.
However, for H1 of FY21, the group suffered a core net loss of RM600,000, compared with a core net profit of RM3.4mil in H1 of FY20, due to weaker-margin jobs being executed. Year-to-date, Mitrajaya has won building jobs worth RM200mil against the research unit’s RM350mil target for FY21.
“This brings its current outstanding order book to RM518.5mil which we find underwhelming as we foresee H2 of FY22/H1 of FY23 revenue to take a dip if Mitrajaya does not secure more than our expected job replenishments of RM350mil each year for FY21 and FY22,” said Kenanga Research.