1Q18 CNP was within expectations accounting for 21% of our and consensus estimates. YTD, KERJAYA has secured 30% of our RM1.2b replenishment target and we think that our target is achievable backed by RM1.5b of tender book stemming from related party jobs. No changes to FY18/19E earnings. Maintain MP with a higher SoP-derived TP of RM1.60.

Results in line. FY18 CNP of RM32.3m was within expectations, making up 21% of our/consensus full-year estimates. No dividends declared as expected.

Results highlight. 1Q18 CNP of RM32.3m increased 14% QoQ due to (i) lower admin cost (-61%) as there were provisioning of year-end bonuses the previous quarter and (ii) effective tax rate normalized to 24% (from 30%) as there were non-tax deductible expenses recorded last quarter (4Q17) which led to a higher effective tax rate. 1Q18 CNP increased 12% YoY mainly from higher revenue (+9%) from increased construction (+3%) and property billings (+126%) as progress picks up.

Replenishment target achievable. For FY18, KERJAYA has secured RM357m worth of contracts accounting for 30% of our RM1.2b targeted replenishment. We believe our targeted replenishment is achievable backed by KERJAYA’s current tender-book of c.RM1.5b. One of KERJAYA’s next project win would likely 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 to be dished out in FY18.

Unbilled sales for Vista Genting currently stand at RM62m with current take-up of 79% and project progress of c.70%. We note that KERJAYA plans to launch their Monterez Shah Alam (GDV: RM300m) project in FY19E.

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

Maintain MARKET PERFORM with a higher SoP-derived TP of RM RM1.60 (from RM1.55) as we (i) roll forward valuations to FY19E while (ii) lowering our construction PER valuations from 13x to 12x. The de- rating in its construction valuations is a broad-based de-rating for all construction counters under our coverage as there are sector uncertainties from the new government and we are anticipating a lull in construction awards in the near-term. We think KERJAYA’s newly applied PER valuation of 12x is fair despite being at the higher end of our universes applied small-mid caps’ PER range of 7-12x given KERJAYA’s (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 overrun as showcased by their excellent track record.

Risks to our call include lower than expected job wins, delay in construction progress and lower than expected construction margins.

Source: Kenanga Research - 30 May 2018