Secures Construction Job Worth RM104.7mn on Andaman Island

KERJAYA has accepted a letter of award for a contract worth RM104.7mn from Persada Mentari Sdn Bhd, an indirect subsidiary of Eastern & Oriental Bhd (E&O). The contract is for the construction and completion of 69 units of 3- storey semi-detached and terrace houses on Andaman Island, Penang. The construction works are expected to commence on 1 December 2023 and will take 26 months to complete from the commencement date.

It is deemed as a recurrent related party transaction as KERJAYA’s nonindependent non-executive chairman, Datuk Tee Eng Ho, is the executive chairman and indirect major shareholder of E&O.

Our View

This is the ninth construction job secured by KERJAYA in 2023, bringing the total year-to-date contract win to about RM1.6bn. Assuming a gross margin of 14%, the project is estimated to generate RM10.5mn of net earnings throughout the construction period.

KERJAYA is not unfamiliar with Andaman Island as the group previously won some jobs on the island. Following the job win, KERJAYA’s total outstanding order book now stands at about RM4.8bn, equivalent to 4.3xFY22 revenue.

Forecast

Maintain our FY23 to FY25 earnings forecasts as the job win is within our FY23 order book replenishment assumption of RM1.6bn.

Valuation

No change to our target price of RM1.57, based on 12xCY24 earnings. Downgrade the stock from Buy to Hold due to limited potential upside following the recent price rally.

Source: TA Research - 7 Nov 2023