1Q17 CNP of RM28.9m came in within our and consensus expectations accounting for 23% of both our full year earnings estimates. No dividends declared as expected. Post results, maintain our FY17-18E earnings estimates of RM125.9m-RM146.3m. Reiterate our MARKET PERFORM call with unchanged SoPderived TP of RM3.10.

Within Expectations. KERJAYA’s 1Q17 CNP of RM28.9m came in within ours and consensus expectations accounting for 23% of both our full-year earnings forecast. As expected, no dividends declared this quarter.

Results Highlights. 1Q17 CNP of RM28.9m was up 10% QoQ

due to (i) better construction margins (+3ppt) despite the marginal drop (-1%) in revenue and (ii) lower admin expenses (-33%). 1Q17 CNP was up 22% YoY on the back of the higher revenue due to (i) higher progress billings from the RM1.5b replenishment achieved in FY16, (ii) lower admin expenses (-27%) and (iii) lower financing costs (-38%).

Company outlook and highlights. Currently, KERJAYA’s outstanding orderbook stood at RM2.6b giving them a visibility of 2-2.5 years. YTD, jobs secured stood at 316m, which makes up 20% of our RM1.6b target (Management target RM800m). Meanwhile, we note that their tenderbook stood at RM1.8b which we believe comprising of jobs from their core clients (SPSETIA, E&O and ECOWLD). That said, we note that Dato’s Tee’s (KERJAYA major shareholder) private property arm plans to launch a mixed development project in Old Klang Road with GDV of RM1.0b which we believe would amount up to c.RM300-400m of awards likely to be secured by KERJAYA. Given KERJAYA’s net cash position of RM148m, we remain confident KERJAYA would be able to dish out a 30% DPR indicating a yield of 1.6%

Potential 1-for-1 Bonus issuance? Based on Companies Act 2016, the share premium account will no longer be applicable from FY18 onwards. Given KERJAYA’s high share premium of RM332m vs share capital of 257m (as of 1Q17), we believe there could be a possibility KERJAYA would undertake a 1-for-1 bonus issuance by then. Should the bonus issuance go through, we would be mildly positive as it would further improve KERJAYA’s liquidity. That said, we note that it would not have any impact towards KERJAYA’s company fundamentals.

Maintain earnings. Post results, we maintain our FY17-18E earnings based on FY17E replenishment target of RM1.6b.

MARKET PERFORM with an unchanged TP of RM3.10. We maintain our MP call with an unchanged SoP-derived TP of RM3.10. Our TP implies 12.0x FY18 PER which is in line with our targeted peers range of 9-13x. We note that while our valuation is at the higher end of our targeted range, we deem it fair considering that KERJAYA’s net margin of c.11% remains superior over peers' (MITRA, KIMLUN, HSL) average of 9%.

Risks to our call include: (i) lower-than-expected replenishment and margins, (ii) delays in construction works.

Source: Kenanga Research - 26 May 2017