KERJAYA has been awarded a RM226m building job in Penang by Aspen Vision City Sdn Bhd (Aspen). The latest contract has boosted its YTD job wins to RM1.5b and outstanding order book to RM4.7b. We continue to like KERJAYA for its innovative and hence high-margin formwork construction method. We keep our forecasts, TP of RM1.64 and OUTPERFORM call.

KERJAYA has been awarded by Aspen a RM226m contract in Seberang Perai Selatan, Penang, for the design and build of two 37- storey apartment blocks with 980 residential units, and a 7-storey podium consisting of carparks, community recreational facilities and shop lots. The contract period is 42 months.

We are positive on the latest contract that has boosted its YTD job wins to RM1.5b, which has met our full-year assumption of RM1.5b and surpassed the company’s own target of RM1.2b. The latest contract has also boosted its outstanding order book to RM4.7b and we expect the contract to fetch a PAT margin of 10%.

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

Forecasts. Maintained.

We also keep our SoP-TP of RM1.64 (see next page), valuing its construction business at 14x forward PER, at a discount to 18x we ascribed to large contractors (i.e., GAMUDA, IJM and SUNCON) given KERJAYA’s focus in on the high-rise building sector currently weighed down by an oversupply in the office and residential segments. There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us (see Page 3).

We continue to like KERJAYA for: (i) its innovative and hence highmargin formwork construction method, (ii) its lean and hands-on management team with a strong execution rack record, (iii) its strong earnings visibility underpinned by a sizeable outstanding order book and recurring orders from related companies (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) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 11 Oct 2023