KERJAYA has bagged its second contract for the year worth RM280.0m from HCK Capital Group Berhad for a proposed project in Subang. We are neutral on the win given that the contract value is within our replenishment target of RM1.2b for FY19E. No changes to FY18-19E earnings. Maintain MARKET PERFORM with an unchanged SoP-driven Target Price of RM1.20.

Second win of the year. KERJAYA announced that they have secured a contract for a proposed project rebranded as Edumetro in Subang worth RM280.0m from HCK Capital Group Berhad. This represents KERJAYA’s second contract from HCK in 2019. The scope of work comprise: (i) main building works for 4 towers on a 3-storey podium, and (ii) 4-level basement car park. The construction work is expected to commence on 1 April 2019 and completed within 28 months.

Neutral on the win. We are neutral on the win as it is within our FY19E replenishment target of RM1.2b. The new job win brings KERJAYA’s YTD replenishment to RM435m, making up 36% of our FY19E replenishment target of RM1.2b. Assuming a conservative pre-tax margin of 15%, the project is expected to contribute c.RM31.5m to the bottom-line. This order-book replenishment brings its outstanding order- book to c.RM3.3b providing 2-2.5 years’ visibility.

On track to meet the replenishment target. Recall that in our previous report, we highlighted the possibility of more job wins from HCK after KERJAYA was awarded the first contract from the latter. We believe this new job win reaffirms our view and displays HCK’s confidence in KERJAYA. Should KERJAYA continue to deliver, we are sanguine of the possibility of more contracts from HCK in the future. 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 for mixed development in Old Klang Road which should set KERJAYA on track to meet our FY19E replenishment target of RM1.2b. As for the longer term, we believe KERJAYA stands a good chance of winning more contracts in Penang, mainly from E&O’s Seri Tanjung Pinang 2 (STP2) project.

No change to earnings estimates. Post contract award, we make no changes to our FY18-19E earnings of RM145.5-154.5m.

Maintain MARKET PERFORM with an unchanged SoP-derived TP of RM1.20 pegged to an unchanged valuation of 10.0x PER on FY19E construction earnings. The valuation ascribed to KERJAYA is at the higher end of our small-mid caps’ PER range of 6-11x due to their excellent track record in project deliveries without a single delay, better margins compared to the other players and total non-reliance on government jobs.

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

Source: Kenanga Research - 13 Feb 2019