KERJAYA has secured a RM170.9m building job from E&O (Not Rated) for a 45-storey service apartment in Pulau Andaman, Penang. This is its first contract win in FY24, boosting its outstanding order book to RM4.5b. We maintain our forecasts, TP of RM1.67 and OUTPERFORM rating.

KERJAYA has been awarded a RM170.9m contract by related company E&O for the construction of a 45-storey service apartment in Seksyen 2, Pulau Andaman, Penang. The contract shall commence in Jan 2024 with a construction period of 35 months.

We are positive on the latest contract, its first contract win in FY24 (against our full-year FY24 job win assumption of RM1.5b), boosting its outstanding order book to RM4.5b. We expect this contract’s PAT margin to be 10%.

Meanwhile, its tender book stands at c.RM2.0b comprising: (i) building/reclamation jobs from its sister companies i.e., E&O and KPPROP (Not Rated), (ii) MNC industrial warehouse/factories (via its JV with Samsung C&T), and (iii) third-party building jobs in the Klang Valley.

Forecasts. Maintained.

Valuations. We keep our SoP-TP of RM1.67 (see next page), valuing its construction business at 14x forward PER, at a discount to the 18x we ascribed to large contractors (i.e. GAMUDA, IJM, and SUNCON) given KERJAYA’s focus on the high-rise building sector currently weighed down by oversupply in the office and residential segments. There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us (see Page 3).

Investment case. We continue to like KERJAYA for: (i) its innovative and hence high-margin formwork construction method, (ii) its lean and hands-on management team with a strong execution rack record, (iii) its strong earnings visibility underpinned by a sizeable outstanding order book and recurring orders from related companies (E&O, KPPROP). Maintain OUTPERFORM.

Risks to our call include: (i) further deterioration in the prospects for building jobs, (ii) rising input costs, and (iii) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 4 Jan 2024