KERJAYA’S FY22 results met expectations. It bagged RM1.57b new contracts in FY22 and has set a target of between RM1.2b to RM1.5b for FY23, backed by a tender book of RM1.5-2.0b. It plans to increase its total workforce to c. 4,000 by adding another 1,700 workers to ensure smooth execution of its record outstanding order book of RM4.7b. We maintain our forecasts, TP of RM1.50 and OUTPERFORM call, and introduce our FY24F numbers.

Within expectations. FY22 core net profit of RM115m met expectations. However, its full-year dividend of 6.0 sen (2.0 sen declared in 4QFY22 announcement) beat our forecast of 4.0 sen.

YoY, FY22 turnover increased by 17% from a low base during the pandemic-stricken period a year ago. Core net profit rose slightly higher by 19% on improved overhead absorption.

The key takeaways from its analyst briefing are as follow:

1. It bagged RM1.57b new contracts in FY22 and has set a target of RM1.2b to RM1.5b for FY23 (vs. our assumption of RM1.5b) backed by a tender book of RM1.5-2.0b. It is eyeing: (i) building jobs from external parties and its sister companies i.e. E&O and KPPROP, (ii) industrial warehouse/factories, and (iii) MNC factories/datacentres from its JV with Samsung.

2. It guided for an average net profit margin of c.10% for its on-going and future jobs, which is lower than c.13% achieved in FY19 prior to the pandemic, but understandable given the elevated cost of inputs, particularly, construction materials and labour.

3. It has brought in 700 foreign workers last Oct, with 700 more arriving within the next 2-3 months which will increase its total workforce to c. 3,000 workers. On top of that, it has recently secured fast-track approvals to bring in an additional 1,000 workers. It believes a total workforce of 4,000 should ensure smooth execution of its record outstanding order book of RM4.7b.

4. Its two property development projects with combined GDV of RM630m will be officially launched in 2HFY23. Construction work on these projects has started with completion expected in 1HFY24.

5. With no definite plans to acquire new landbank and a net cash of RM245m as at end-FY22, it is in a good position to pay out good dividends to shareholders.

We maintain our forecasts and SoP-TP of RM1.50, valuing its construction business at 13x forward PER, at a discount to 14x-18x we ascribed to mid-sized and large contractors (i.e. GAMUDA, IJM and SUNCON), as KERJAYA’s focus is on high-rise building jobs of which prospects are weighed down by oversupply, both in the office as well as residential segments. There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us (see Page 4).

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 - 28 Feb 2023