Yesterday, KERJAYA announced that they had secured a RM207.4m development project from BCB Berhad at Seksyen 31, Shah Alam, Selangor. We are NEUTRAL on the award given that YTD wins of RM239 is still within our FY17E replenishment target of RM1.6b. Maintain our FY17-18E earnings forecasts. Post award, we downgrade KERJAYA to MP (from OP) with unchanged TP of RM3.10.

New contract in the bag! Yesterday, KERJAYA announced that they had secured a project known as “Hometree – Phase 2” worth RM207.4m from BCB Berhad. The scope of works comprises main building works for (i) 166 units of 3-storey semi-d’s, (ii) 99 units of 3 storey bungalows, (iii) 1 two-storey club house, (iv) 2 security guard house, (v) 4 electrical substations and (vi) 1 singlestorey mosque at Seksyen 31, Shah Alam, Selangor Darul Ehsan slated for completion by September 2019 (c.29 months duration). We note that this is the second project KERJAYA is securing from BCB whereby the first project (worth RM313m) was secured back in May-16.

Neutral on the award. We are NEUTRAL on the award given that KERJAYA’s YTD wins of RM239m is still within our FY17E replenishment target of RM1.6b; making up 15% of our replenishment target with a remainder of RM1.36b to be achieved for the rest of year. Assuming PBT margins of 14%, this newly secured project is expected to contribute c.RM10.4m to KERJAYA’s bottom-line per annum.

Company outlook. Post-award, KERJAYA’s outstanding orderbook stands at c.RM2.5b providing healthy earnings visibility for the next 2.0 years. We believe KERJAYA is set to achieve our replenishment target of RM1.6b mainly backed by projects from E&O, SPSETIA and Dato Tee’s (major shareholder of KERJAYA) private property arm.

Maintain FY17-18E earnings. Post award, we make no changes to our FY17-18E CNP RM125.9m-RM146.3m.

Downgrade to MP. YTD, KERJAYA’s share price has performed very well registering gains of 43.8%; also hitting our TP of RM3.10. Given the rally, we believe the risk-to-reward ratio is no longer as compelling and thus, downgrade our call to MARKET PERFORM (from OP) with an unchanged SoP-derived TP of RM3.10. Our TP implies 12.0x FY18 PER in line with our targeted peers’ range of 9.0-13.0x. We note that while our valuation is at the higher end of our targeted range, we deem it fair considering that KERJAYA’s net margins of c.11% remain superior over peers’ (MITRA, HSL, KIMLUN) average of 9%. Risks to our call include: (i) lower-than-expected replenishment and margins, (ii) delays in construction works.

Source: Kenanga Research - 12 May 2017