• Still BUY and MYR1.55 TP, 41% upside and c.4% yield. Kerjaya Prospek announced that it secured a MYR404.4m contract from BCM Holdings (a subsidiary of Ecofirst Consolidated (ECOF MK, NR)). The contract entails the construction of two apartment blocks for the proposed development of a 39-storey service apartment basement and podium, consisting of an eight- storey carpark and commercial units (collectively known as KL48 Residence) (Figure 1). Works are expected to commence from Aug 2023 for 36 months.

• Impact to orderbook. This is the group’s third contract win for FY23 after clinching jobs related to the Seri Tanjung Pinang Phase 2 (STP2) and the Bukit Bintang City Centre developments in February this year. As such, this latest job win brings KPG’s FY23 YTD new contract wins to MYR868.7m (after taking into account the effective share in each contract) or 66.8% of our FY23 job replenishment target of MYR1.3bn. With this latest contract, its outstanding orderbook rises to MYR4.7bn (from MYR4.5bn as at end 1Q23) – translating into an earnings visibility of up to four years vs the peer average of around three years. Profit wise, we expect this new contract to fetch c.10% margin, in line with our overall group assumption.

• Near-term prospects. We expect the upcoming job wins to come from its partnership with Samsung C&T – focusing on sophisticated industrial jobs in the technology industry such as data centres. This will likely serve as a strategic buffer should jobs from the property market face a slowdown. Manpower is also expected to be ample – with at least 2.5k workers (likely to reach an optimal capacity of c.4k workers in the coming months) – enabling KPG to recognise higher progress billings in the coming quarters.

• No changes to our earnings estimates as the latest job secured is within our FY23 job replenishment target of MYR1.3bn. As such, our SOP-derived TP of MYR1.55 remains unchanged, which incorporates a 0% ESG premium/discount to our intrinsic value, based on our in-house ESG proprietary scoring methodology.

• Long-term key drivers. Aside from KPG’s industrial venture, the group is likely to see steady job flows from the development of STP2 (c.MYR2bn of jobs within the next 5-7 years) and Bukit Bintang City Centre (c.MYR600m jobs awarded to date). Given such prospects, we view its valuation to be undemanding as the stock is trading at -2SD from the Bursa Malaysia Construction Index’s 5-year mean P/E.

• Key downside risks: Property market slowdown and prolonged cost material pressures.

Source: RHB Research - 13 Jun 2023