KERJAYA has bagged its second contract for this year, valued at RM332m, to undertake the construction of main building works for a proposed high-rise property development project in Kuala Lumpur. This takes YTD contract wins to RM949m, placing the Group to at least achieve our full-year order-book replenishment target of RM1.2b. With an outstanding order-book of RM3.8b to drive future earnings, we maintain our OUTPERFORM call with unchanged SoP-derived TP of RM1.50.

Second contract win in 2020. KERJAYA has accepted a letter of award from Patsawan Properties Sdn Bhd (an indirect joint-venture company of Eastern & Oriental Berhad (E&O) and Mitsui Fudosan Asia Pte Ltd) to carry out the construction of main building works for a proposed property development project consisting of 491-unit serviced apartments located at Jalan Kia Peng, Kuala Lumpur. The job scope for the proposed 54-storey building works will cover: (i) a 10-storey car park with common facilities, and (ii) 44-storey serviced apartments. The contract (with a total value of RM331.95m) shall commence on 20 Jan 2020 and is to be completed within 35 months and 11 days from the commencement date.

Lifting order-book further. The latest contract win comes hot on the heels of the clinching of a construction job worth RM617.0m from Aspen Vision City that was announced just a week ago. This brings its YTD contract wins to RM949m, putting KERJAYA in a strong position to at least achieve our full-year order-book replenishment assumption of RM1.2b (which is similar to 2019 total contract wins value of RM1.2b). No change to our earnings forecasts. Consequently, its outstanding construction order-book has risen to RM3.8b which will underpin earnings visibility for the next 3-4 years.

A related party transaction. The deal is regarded to be a related party transaction as Datuk Tee Eng Ho (Datuk Tee) is a director of E&O while Datuk Tee & family are substantial shareholders of E&O (holding a 13.9% stake in E&O). Datuk Tee & family are also the major shareholders of KERJAYA with a combined interest of 70.8%.

Maintain OUTPERFORM. Our SoP-derived target price is unchanged at RM1.50. This is anchored on its construction business which is valued at FY20E P/E of 10.7x (at 3-year mean) (please refer to SoP table overleaf).

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

Source: Kenanga Research - 21 Jan 2020