KERJAYA secured its fourth contract win for the year worth RM227.3m a development project near Jalan Bukit Bintang by Asset Kayamas. We are neutral on the win as the replenishment is still within our FY19E assumptions of RM1.2b. No changes to FY19-20E earnings. Downgrade to UP (from MP) with an unchanged SoP-driven TP of RM1.20, implying FY20E PER of 9.5x.

Fourth win. Yesterday, KERJAYA announced that they secured a contract worth RM227.3m for the construction of a development project located near Jalan Bukit Bintang. The scope of works consists of 2 blocks of apartment on top of 9 storey podium car park, which will take 36 months. The developer behind the project, i.e. Axon Bukit Bintang is Asset Kayamas, which is one major developer of Rumah WIP in KL.

Neutral on the win. We are neutral on the win as it is still within our FY19E order-book replenishment of RM1.2b. To date, KERJAYA replenished RM1.1b worth of jobs, making up c.92% of our FY19E replenishment target. Assuming, pre-tax margin of 15%, the project is expected to contribute an aggregate net profit of RM25.5m over 3- years. The win also brings its outstanding order-book up from RM3.1b to RM3.3b providing them easily 3-years visibility.

Earnings estimates. No changes to our FY19-20E earnings.

Downgrade to UP (from MP) with an unchanged SoP-derived TP of RM RM1.20 pegged to unchanged valuation of 10.0x PER on FY20E construction earnings, due to the recent rise in share price. The valuation ascribed to KERJAYA is at one of the higher-end of our small mid cap PER range of 6.0-11.0x due to their strong delivery capabilities with no delays in project delivery coupled with fatter margins compared to other players. Based on our SoP-derived TP, it implies a 9.5x FY20E PER which is lower than our ascribed 10.0x to its construction division as it is diluted by its property division which we ascribed a lower multiple of 5.0x.

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

Source: Kenanga Research - 21 Jun 2019