KERJAYA has won a new contract award worth RM211.6m bringing its YTD replenishment to c.RM1.0b. Neutral as the contract value is within our replenishment target of RM1.2b for FY18.No changes to FY18-19E earnings. Maintain OUTPERFORM with unchanged TP of RM1.40.

One more before the year ends. Yesterday, KERJAYA announced that they have secured a building contract worth RM211.6m from PPB Hartabina Sdn Bhd (PPBH) a subsidiary of PPB Group Berhad. Construction works for the thirty-one-storey service apartment, a nine- storey car park podium with common facilities, as well as a block of four-storey office/commercial units with two-level basement car park and commercial units are expected to commence on 8thDec 2018 and complete by 8th June 2021 or in 30 months.

Neutral. We are neutral on the win as the replenishment is still within our FY18E replenishment target of RM1.2b. The latest win brings its year-to-date jobs secured to c.RM1.0b which makes up 83% of our replenishment target of RM1.2b. Assuming a conservative pre-tax margin of 15%, we expect the project to contribute RM31.7m in pre-tax over the next 30 months. The replenishment will bring its outstanding order-book to c.RM3.1b with 2-2.5 years visibility.

Outlook. The overall sentiment for the construction sector remains weak due to the cost review on mega infrastructure projects. However, we believe that KERJAYA is the least affected contractor in town due to their zero exposure to government-related jobs as all of their construction jobs are from the private sector. In the near term, we are still anticipating another replenishment worth c.RM400.0m from Dato’ Tee’s (KERJAYA’s major shareholder) private property arm as they are looking to launch a mixed development in Old Klang Road with GDV of RM1.0b. As for the longer term, we believe that KERJAYA stands a good chance of winning more contracts in Penang mainly from E&O’s Seri Tanjung Pinang 2 (STP2) project as we believe more bridges are required to connect Penang Island and STP2.

Earnings estimates. No changes to our FY18-19E earnings of RM145.5-154.5m.

Maintain OUTPERFORM with unchanged SoP-derived TP of RM RM1.40 pegged to unchanged valuation of 11.0x PER on FY19E construction earnings. The valuation ascribed to KERJAYA is at the highest end of our small-mid caps’ PER range of 6-11x due to their excellent delivery track record of no delays in project delivery, better margins compared to the other players and zero exposure to government jobs.

Risks to our call include (i) lower-than-expected job wins, (ii) delay in construction progress and (iii) lower construction margins.

Source: Kenanga Research - 06 Dec 2018