KERJAYA has secured a RM404m residential building job known as KL48 from Ecofirst Consolidated Bhd. We are positive on this win that raised its YTD replenishment to RM972m and lifted its outstanding order book to an all-time high of RM4.7b. We continue to like KERJAYA for its innovativeness that translates to high margin construction methods. We maintain our forecasts, TP of RM1.50 and OUTPERFORM call.

Third contract for the year. Kerjaya has secured a RM404.4m contract from Ecofirst Consolidated Bhd to undertake construction works for a 47-storey residential development project at Jalan Satu, Chan Sow Lin, Kuala Lumpur. The development known as “KL48” has a GDV of RM1.0b comprising 1,700 serviced apartments at sizes of 650 sf and 850 sf, built on a 4.18-acre freehold plot of land. This 36-month contract will commence from 1st August 2023.

We are positive on this win that has raised its YTD replenishment to RM972b, accounting for 65% of our FY23F full-year job win assumption of RM1.5b and lifted its outstanding order book to an all-time high of RM4.7b. Furthermore, upon delving deeper into the KL48 development, we find the payment risk for the project is low as it is likely to be well received by the market given a highly competitive selling price of c.RM720 psf for a fully furnished unit, vs. RM726 to RM760 psf for a partially furnished unit of adjacent freehold developments i.e. TRION 1 and 2. Overall, we expect this new contract to fetch c.10% margins for KERJAYA, in line with our overall group assumption.

Currently, its tender book stands at c.RM1.5b-RM2.0b from: (i) building/reclamation jobs from its sister companies i.e. E&O and KPPROP, (ii) MNC industrial warehouse/factories alongside its JV with Samsung, and (iii) third-party building jobs in the Klang Valley.

We maintain our forecasts and SoP-TP of RM1.50 (see next page), 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 the high-rise building sector currently 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 - 13 Jun 2023