Kerjaya Prospek Group’s (KPGB) 3QFY23 core net profit rose 7.1% QoQ, owing to the better performance of its construction and property divisions. Its construction division saw 11.5% QoQ improvement due to progressive billings whereas its property division chalked its first contribution in 5 quarters upon sales recognition from The Vue @ Monterez project (which was officially launched in 3QFY23). YTD, KPGB’s full-year core net profit is within ours but lower than streets’ estimates, accounting for 74.1% and 68.8% respectively. That aside, KPGB also reported the discontinuation of KL48 job worth RM404.4m (awarded on June 12, 2023). As such, our FY23 orderbook replenishment assumption is now lowered by 24% to RM1.3bn, after factoring the job cancellation. YTD new wins represent 91% of our new RM1.3bn FY23 orderbook replenishment assumption. All told, our FY23-25F forecast is revised downwards by 3.6% on average per annum post billings adjustments. KPGB share price has risen 28.9% since our initiation and given the limited upside potential, we downgrade our rating on KPGB to Neutral with a lower SOP TP of RM1.52 (previously RM1.63) due to the changes made to our forecasts. Also, KPGB has proposed a third interim dividend of 2.0 sen during the quarter, bringing YTD dividends to 6.0 sen.

• Topline jumped 17.1% QoQ. KPGB recorded notable improvement in its construction and property divisions. Its construction segment climbed 11.5% QoQ led by higher progress billings. Conversely, its property segment chalked RM17.7m contribution during the quarter from The Vue @ Monterez which was officially launched in 3QFY23 and saw take-up at about 40% as-to-date.

• Discontinuation of KL48 job. We have lowered our FY23 orderbook replenishment target to RM1.3bn from RM1.7bn earlier after taking out the job worth RM404.4m. We understand that no works has begun despite securing the job in 2QFY23. Hence, no actual losses have incurred to the Group however, the job represents potential 3-5% earnings loss over the contracted period in FY23-26. During the briefing, the Group indicated that it will be seeking legal advice to recover the pre-agreed damages payable stated in the Letter of Acceptance from BCM Holdings SB.

• Our thoughts. In light of this announcement, we opine that downside risk from the discontinued contract is limited as the Group has not incurred much cost as yet and might be able to seek compensation from the counterparty. We understand KPGB could recover damages payable amounting to c. 5-10% of the contract value from the counterparty, BCM Holdings SB. As the client has not surrendered the site to KPGB yet, we believe the financial impact to the Group is negligible.

Source: PublicInvest Research - 22 Nov 2023