FY17 CNP of RM124.5m came within our/consensus expectations at 98%/97%. No dividends declared as expected. Maintain FY18E earnings and introduce FY19E earnings of RM166m. Maintain UP with unchanged SoP- derived TP of RM1.55.

Results in line. FY17 CNP of RM124.5m is within expectations, making up 98%/97% of our/consensus full-year estimates. No dividends declared as expected.

Results highlight. FY17 CNP was up by 25% YoY due to: (i) higher revenue (+19%) from higher construction billings, and (ii) improved construction margins (+1ppt) from higher margin jobs. 4Q17 CNP of RM28.3m was down 18% QoQ despite the higher revenue (+10%) due to: (i) higher administrative cost (+169%), and (ii) higher effective tax rate of 30% (+14ppt) in 4Q17 stemming from non-tax deductible income in 4Q17 along with 3Q17 having a higher portion of non-taxable income.

Outlook. For FY18, we are anticipating KERJAYA to clinch new wins of RM1.2b. To recap, they have secured RM1.4b contract wins in FY17, meeting our expectation of RM1.4b. Currently, KERJAYA’s outstanding order-book stands at RM3.0b giving them a visibility of c.2.5-3.0 years. Meanwhile, its tender-book stands at c.RM1.5b. We believe future project wins could be from Dato’s Tee’s (KERJAYA’s major shareholder) private property arm that is planning to launch a mixed development project in Old Klang Road with GDV of RM1.0b with c.RM400m worth of construction contracts likely to be dished out in FY18.

Unbilled sales for Vista Genting currently stand at RM71m with current take-up of 76% and project progress of 58%. We note that KERJAYA plans to launch their Monteraz Shah Alam (GDV: RM300m) project in FY19E.

Earnings estimates. We maintain our FY18E earnings of RM153m and introduce FY19E earnings of RM166m based on FY18-19E replenishment target of RM1.2-1.2b.

Maintain UNDERPERFORM with an unchanged TP of RM RM1.55 as we believe that KERJAYA’s risk-to-reward ratio is no longer compelling as it’s currently trading at FY18E PER of 14.5x implying a FY18E construction PER of 15.2x – which we consider high as it is above our ascribed range of 8-13x for small mid-cap contractors within our universe. We believe further rerating catalyst for KERJAYA could be higher-than-expected replenishment or profit margin.

Source: Kenanga Research - 27 Feb 2018