KERJAYA has secured a RM292.8m building contract from a repeat client, UEMS (Not Rated), to build a 57-storey service apartment in Kuala Lumpur, its first external job this year. This brings its YTD job wins to exceed its guidance at RM1.55b, and lifting outstanding order book to RM4.7b. We keep our estimates and TP of RM2.24. OUTPERFORM maintained.

Secures RM292.8m building contract. Yesterday, KERJAYA announced that it has been awarded a RM292.8m contract from UEMS’ subsidiary Mega Legacy (M) Sdn Bhd for building works for a proposed 57-storey service apartment in Kuala Lumpur. The contract shall commence in Sep 2024 with a construction period of 38 months.

Hit RM1.5b YTD contract wins so far in FY24. We are positive on the latest contract win, its 8th in FY24 and 1st external job, boosting its YTD new job wins to RM1.55b (against our full-year FY24 assumption of RM1.6b) and lifting outstanding order book to c.RM4.7b. Meanwhile, its tender book stood at RM4.0b, comprising RM2b building jobs (70% are RPT) and three industrial jobs including data centre bid worth RM2b. It is not keen to bid for external infrastructure job.

Forecasts. While its YTD contract win of RM1.55b is very close to our FY24 assumption of RM1.6b, we maintain our assumption as the Aug contract win of RM275.3m is to be start construction work from Jan 2025 which will not be recognised in FY24. Thus, we keep our estimates unchanged.

Valuations. Maintain our SoP-driven TP of RM2.24 (see next page), valuing its construction business unchanged at 16x forward PER, at a discount to the 20x we ascribed to large contractors (i.e. GAMUDA, IJM, and SUNCON) given KERJAYA’s focus on the high-rise building sector which is 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 4).

Investment case. We continue to like KERJAYA for: (i) its innovative and hence high-margin formwork construction method (c.10% net margin), (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) of at least RM1b a year. Maintain OUTPERFORM. The stock also offers attractive dividend yields of >5%.

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 - 13 Sep 2024