KERJAYA has clinched the building job for a 31-storey serviced apartment known as SWNK Houze in Bukit Bintang City Centre (BBCC), the fourth in this development. This win accounts for 4.4% of our FY23 replenishment assumption of RM1.5b and lifted its outstanding orderbook to RM4.2b. We continue to like KERJAYA for its innovative and hence, high-margin construction methods. We maintain our forecasts, TP of RM1.50 and OUTPERFORM call.

First contract in 2023. Kerjaya through its 49%-owned associate Kerjaya Bina BMK S/B has won a RM135.4m building contract (effective value: RM66.3m) from BBCC Development S/B to undertake construction works for SWNK Houze, a 31- storey serviced apartment alongside its basement and podium comprising a 7-storey car park, main lobby and multipurpose hall. This 36-month contract will commence from 1 March 2023.

We are mildly positive of this win which makes up 4.4% of our FY23F replenishment target of RM1.5b which lifts its outstanding order book to RM4.2b. We expect this new contract to fetch c.10% margins, in line with our overall group assumption.

More to come from BBCC. BBCC’s remaining high-rise components comprise of: (i) one residential tower, (ii) one office block, and (iii) the 80-storey BBCC signature tower (see Page 2). We believe Kerjaya stands a good chance in securing the last residential tower and office block as these developments share the same podium with: (i) SWNK Houze, (ii) SR Tower - in which Kerjaya is currently constructing, and (iii) Lucentia Residence (which Kerjaya completed in 2021). We believe the two remaining jobs have a contract sum quantum of c.RM400- 500m.

We maintain our forecasts and SoP-TP of RM1.50 backed by its construction PER of 13x, at a discount to the 14-18x we ascribed to medium and large cap contractors (Gamuda, IJM and Suncon) as KERJAYA’s order book still predominantly comprises high-rise building jobs which faces a national oversupply issue. There is no adjustment to our TP based on a 3-star ESG rating as appraised by us (see Page 5).

We continue to like KERJAYA for: (i) its innovative construction solutions and lean cost structure that translate to above-average margins, (ii) its hands-on management team and track record of strong execution, and (iii) its ability to consistently win external jobs and the availability of job orders from related parties (E&O, KPPROP). Maintain OUTPERFORM.

Risks to our call include: (i) further deterioration in the prospects for building jobs, (ii) rising input costs, and (iii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD).

Source: Kenanga Research - 3 Feb 2023