KERJAYA has announced their first FY18 contract win worth RM357.3m project from BBCC Development S/B, scheduled for completion in April 2021. Remain NEUTRAL as it accounts for 30% of our FY18E replenishment target of RM1.2b and thus within expectation. No change in our FY18-19E earnings forecasts. Maintain MARKET PERFORM with an unchanged SoP-derived TP of RM1.55.

First win in FY18. KERJAYA announced that they have secured a building contract worth RM357.3m from BBCC Development S/B. The project called ‘Lucentia’ located at the intersection of Jalan Hang Tuah and Jalan Pudu in Kuala Lumpur comprise construction works for 2 towers of high-rise (666 units) where one tower is built above an 8- storey car park podium and the other tower is on a 6-storey car park. The project is slated for completion by 21st April 2021 (36 months).

Contract within our target. We are NEUTRAL on the award as KERJAYA’s first win is within our FY18E targeted replenishment of RM1.2b - accounting for 30% of our full-year target. Assuming PBT margin of 15%, the contract is expected to contribute c.RM13.4m to KERJAYA’s bottom-line per annum for the next three years.

Outlook. Currently, KERJAYA’s outstanding order-book stands at RM3.1b giving them visibility of c.2.5-3.0 years. Meanwhile, its tender- book stands at c.RM1.5b consisting mainly building works. We believe further FY18E 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 translating to c.RM400m worth of construction works.

Unbilled sales for Vista Genting stood at RM71m (as of FY17) with take-up rate of 76% and project progress at 58% level. We note that KERJAYA plans to launch their Monterez Shah Alam (GDV: RM300m) project in FY19.

Earnings estimates unchanged. We maintain our FY18-19E earnings of RM153-166m based on replenishment target of RM1.2-1.2b.

Maintain MARKET PERFORM with an unchanged SoP-derived TP of RM1.55. Note that we upgraded KERJAYA from UP to MP in our last sector report (dated 4/4/18) as KERJAYA’s share price then had declined 14% YTD even though their earnings and outlook remained intact. While our ascribed FY18E construction valuation of 13x for KERJAYA is at the higher end of our small-to-mid cap contractor universe’s range of 8-13x, we remain comfortable given: (i) stronger margins against peers (FY18E PAT margins of 12% vs. peers’ average of 9%), and (ii) resilient earnings from timely delivery of projects with little risks of cost overruns as showcased by their excellent track record. We believe further rerating catalyst for KERJAYA could be higher-than- expected replenishment or profit margin.

Source: Kenanga Research - 13 Apr 2018