Kerjaya Prospek Group (KPGB) FY22 core net profit expanded 11.2% YoY, lifted by higher progress billings from its construction division. The division registers 16.1% YoY improvement, as most projects were expedited on the back of improved work efficiency, allowing higher revenue recognition. KPGB’s full-year core net profit however, is slightly below ours and consensus estimates, accounting for 93.3% and 93.1% respectively. Separately, given the faster than expected jobs replenishment, we increase our FY23-25 orderbook replenishment assumption by 50% to RM1.5bn, in line with management’s guidance. YTD, its jobs replenishment has make up 53.3% of our original RM1.0bn orderbook replenishment assumption. All told, we tweak our FY23-25F forecast downwards by an average of 3% after adjusting our billings assumptions and to reflect higher cost of construction. Our Outperform rating is maintained with a revised sum-of-parts TP of RM1.70 (previously RM1.69) following the changes made to our forecast. It also announced a fourth interim dividend of 2.0 sen, bringing YTD dividends to 6.0 sen.

• FY22 topline grew 16.7% YoY lifted by higher progress billings from the construction division. The division recorded 16.1% YoY revenue growth as construction work progress was expedited in regards to the improved labour headcount. As of 1QFY23, we understand that the Group has managed to recruit c.45% out of 2,500 manpower applied.

• FY22 PBT improved 16.7% YoY mainly driven by higher interest income and lower financing cost. Investment profits rose 60.5% YoY as deposit rate rose following the central bank interest rate hike. Earnings at pre-tax level also improved on lower financing cost (-41% YoY).

• Rising material prices. Overall, we believe that the construction division may face margins compression in the coming quarters as key building material prices i.e.: cement and steel have climbed more than 10% since Dec 2022. However, we think the impact should be ameliorated with the availability of price escalation clause. As such, we trim down our FY23-25F forecast by an average of 3% to reflect challenging times ahead.
  In terms of job availability, we are less concerned as KPGB’s current orderbook of RM4.7bn provides earnings visibility of 4 years based on FY22’s construction revenue of RM1.1bn. We are confident that KPGB will be able to achieve our new orderbook replenishment target of RM1.5bn as the Group continues to benefit from internal jobs on the pipeline as well as high-rise and industrial building jobs from the private sector.

Source: PublicInvest Research - 28 Feb 2023