Prior to 2016, Kerjaya Prospek Group (KPGB) was known as Fututech, a kitchen and lighting manufacturer before venturing into construction via a capital injection exercise. 7 years into high-rise construction, the Group has consistently achieved stable, double-digit net profit margins (except 2021 due to the COVID-19 pandemic) and maintained a net cash position under the current Management’s leadership. With the residential construction segment potentially looking lackluster in 2023 as property market demand may weaken, we think KPGB will be able to avert this by focusing and building their way out of residential high-rise into commercial buildings. To note, in FY22, KPGB joined hands with Samsung C&T (KL) Sdn Bhd (Samsung C&T) and has successfully won a contract to build a semiconductor factory worth RM1.4bn. The Group has no formal dividend policy, but has consistently paid out, within the range of 3-4sen of the Group’s PATAMI annually, since 2016. Hence, we expect the Group to declare a total of 4sen dividend per share, rendering a dividend yield of 3.4% in FY23. We initiate coverage on KPGB with an Outperform call and a SOTP derived TP of RM1.69, translating to an implied PER of 11x. We believe the PER ascribed is justifiable as it is within comparable market capitalizations against its peers. As for the property segment, we apply a discount of 30% to its RNAV, which is justifiable given that the projects are located in the Klang Valley.

• Concrete orderbook. As of 9MFY22, the Group has an outstanding orderbook of RM4.2bn, its highest achieved compared to its previous high of RM3.5bn in FY17. KPGB’s year-to-date new wins for FY22 amounted to RM1.8bn, also the highest in its history. Outstanding orderbook of the Group renders earnings visibility for the next 4 years based on FY21’s construction revenue of RM976.6m.

• Hopeful on job availability. Property launches were subdued in 2022 as developers deferred launches due to high building materials cost, labour shortage and weakened demand. However, we notice the overhang situation has improved slightly, down 7.5% YoY and 4.6% YoY in volume and value as developers have been actively clearing their completed inventories. Moving forward, we think developers will start ramping up development to replenish its depleting inventories and meet housing demand beyond 2023 as construction of high-rise buildings may require approximately 2-3 years.

• Earnings outlook. The current financial year (FY22) is expected to see a 19.7% YoY increase in net profit compared to FY21 on the back of higher revenue. Excluding the pandemic years of 2020 and 2021, 9MFY22 revenue growth is higher by 6.4% in comparison with 9MFY19 revenue growth due to stronger construction earnings recognition as projects were either >50% completed or at tail-end. Meanwhile in FY23, core earnings are expected to grow 24.4% YoY on the back of an RM1.0bn orderbook replenishment, lower cost of sales by 0.6% and an 11.0% reduction in finance cost.

Source: PublicInvest Research - 13 Jan 2023