KERJAYA has bagged two contracts worth a total of RM95.1m from E&O (Not Rated) for bridge superstructure and piling & substructure works in Andaman Island, Penang, boosting its YTD job wins to RM266.1m and outstanding order book to RM4.6b. We maintain our forecasts but raise our TP by 14% to RM1.90 (from RM1.67). Maintain OUTPERFORM.

KERJAYA has been awarded two contracts worth a total of RM95.1m by related-company E&O with the details as follows:

1. a RM69.2m contract for superstructure works on Gurney Marine

Bridge Phase 2 linking Jalan Gurney to Andaman Island,

commencing Jan 2024 with a construction period of 24 months; and

2. a RM25.9m contract for piling and substructure works for a

proposed 50-storey serviced apartment in Andaman Island,

commencing Jan 2024 with a construction period of 12 months.

We are positive on these latest contracts, its 2nd and 3rd contract wins in FY24, boosting its YTD new job wins to RM266.1m against our full-year FY24 assumption of RM1.5b. The latest jobs have also boosted its outstanding order book to RM4.6b.

Meanwhile, its tender book stands at c.RM2.0b comprising: (i) building/reclamation jobs from its sister companies i.e. E&O and KPPROP (Not Rated), (ii) MNC industrial warehouse/factories (via its JV with Samsung C&T), and (iii) third-party building jobs in the Klang Valley.

Forecasts. While maintaining FY23F-FY24F earnings forecasts, we introduce new FY25F net profit with an earnings growth of 12% based on a job win assumption of RM1.6b.

Valuations. We upgrade our SoP-TP by 14% to RM1.90 (see next page) from RM1.67, as we roll over our valuation base year to FY25 with unchanged construction valuation of 14x forward PER, at a discount to the 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).

Investment case. We continue to like KERJAYA for: (i) its innovative and hence high-margin formwork construction method, (ii) its lean and hands-on management team with a strong execution track record, (iii) its strong earnings visibility underpinned by a sizeable outstanding order book and recurring orders from related companies (such as 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 - 9 Jan 2024