1QFY22 CNP of RM29m is deemed within expectations at 19%/21% of our/consensus estimate as we expect earnings to play catch-up in the subsequent quarters from margin improvements and the launching of two property projects. A 2.0 sen dividend declared was also in line. YTD replenishment stood at RM975m, fast approaching our/management’s previous RM1.2b target. With a high probability of new contracts from E&O and KPPROP (related parties), we upgrade our FY22 replenishment target to RM1.5b – also in tandem with management’s new target. Consequently, FY23E CNP is raised by 2%. Keep OP and SoP-TP of RM1.50.

Deemed within expectations. Despite 1QFY22 CNP of RM29.4m coming in at 19%/21% of our/consensus estimate, we deem it as within expectation as we expect earnings to play catch-up in the subsequent quarters arising from: (i) improvement in construction margins amidst softer input costs and easing labour shortage, and (ii) the launch of their two property development projects at Yakin Land and Monterez (total GDV of RM630m). The construction works at these developments have already commenced with foundation phase already completed. Upon launching in 2H, these two developments should be able to recognise c.15% progress billings to revenue immediately when SPAs are signed.

A 2.0 sen dividend declared is within our 4.5 sen target. Nonetheless, we note that the timing of dividend declaration was a pleasant surprise as the group typically only announces dividends in 2Q and 4Q.

Highlights. 1QFY22 CNP of RM29.4m decreased 3% QoQ due to weaker GP from margin contraction (-6ppt). The margin contraction mainly stems from higher raw material prices and labour costs. Nonetheless, we note that this quarters’ revenue is an all-time high – alluding to management’s ability to navigate the acute labour issue faced nationwide which affected progress recognition of its peers. We believe its high cash level and prompt payments appeal to the sub-con and labour market – allowing KERJAYA to be prioritized during this challenging period. YoY, 1QFY22 CNP increased 11% on lower admin costs (-26%) and effective tax rates (-3ppt).

YTD, Kerjaya has replenished RM975m in jobs – fast approaching our/management’s previous RM1.2b target. Consequently, management has revised their target up to RM1.5b which we follow suit. Replenishment prospects come from Datuk Tee’s (Kerjaya’s major shareholder) two other listed companies (E&O and KPPROP). Construction order-book remains healthy at RM4.4b (c.4x cover) as of March-2022.

1QFY22 net cash level of RM197.3m (+11% QoQ; +17% YoY) remains healthy with no receivables/inventory anomalies observed.

Post results, we maintain FY22E earnings but increase FY23E earnings by 2% on higher FY22E job replenishment of RM1.5b (from RM1.2b).

Keep OP on unchanged SoP-TP of RM1.50 anchored by a construction PER of 11x. We continue to like Kerjaya for its reliable earnings delivery, clear pipeline of projects which promotes bottom-line growth, and prudent cash management. Risks to our call include: lower-than-expected job wins, delay in construction progress and lower construction margins.

Source: Kenanga Research - 27 May 2022