KERJAYA has been awarded a RM104.7m building job by a unit of E&O. This brings its YTD job wins to RM1.6b (which has exceeded our full-year assumption) and outstanding order book to RM4.8b. We raise our FY23F and FY24F net profit by 1% and 6%, respectively, lift our TP by 7% to RM1.75 (from RM1.64) and maintain our OUTPERFORM call.

KERJAYA has been awarded a RM104.7m contract by related company E&O (Not Rated) for the construction of 69 units of 3-storey semi-detached and 3-storey terraced houses in Seksyen 2, Pulau Andaman, Penang. The contract shall commence in Dec 2023 with a construction period of 26 months.

We are positive on the latest contract that has increased its YTD job wins to RM1.6b, which has now exceeded our full-year assumption of RM1.5b and surpassed the company’s own target of RM1.2b. It has also raised its outstanding order book to RM4.8b. We expect this contract’s PAT margin to be 10%.

Currently, its tender book stands at c.RM1.5b−RM2.0b 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. We raise our FY23F and FY24F net profit by 1% and 6%, respectively, as we now assume job wins of RM1.7b in FY23 (vs. RM1.5b previously). We maintain our job win assumption of RM1.6b in FY24.

Consequently, we also lift our SoP-TP by 7% to RM1.75 (see next page) from RM1.64 previously, 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 on the high-rise building sector currently weighed down by 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 - 7 Nov 2023