Valuation / Recommendation

Results were within expectations, achieving 29.9% and 27.8% of our full year revenue and profit forecasts for FY22 due to higher progress billings from construction activities.

We maintain a BUY recommendation on Kerjaya Prospek Group Bhd with a revised TP of RM1.34 based on FY23F EPS 9.4 sen and PE of 14.3x in line with the 2-years average. We think that the company may have more opportunities to secure new contracts against the backdrop of a recovering construction sector, which could expand by 11.5% in 2022 as forecasted by department of statistics Malaysia (DOSM). With operations fully resumed, we think that there will be smoother progress of projects due to its workforce fully vaccinated which reduces work stoppages moving forward.

Investment Highlights

Strong financial position. Kerjaya has net cash of RM197.3m and total borrowings of RM86.7m as of 31 March 2022, which allows the company the potential capacity to undertake more projects moving forward.

Healthy order book. Kerjaya has an outstanding order book of RM4.4bn as of 31 March 2022 (RM2.2b from related parties and RM718m from infrastructure projects), which should provide earnings visibility over the next 5 years. The company has a tender book of more than RM1.5bn focused on building jobs, and a tender success rate of 20%, that if successful will increase the order book. We estimate an annual target order book replenishment of RM1.0bn to RM1.2bn.

Proven track record. Even during the Covid-19 pandemic, the company has won more than RM900m worth of project value from established property developers in FY21, of which 40.8% are from related party. The company has several notable on-going projects such as the Axon Bukit Bintang and Bloomsvale Old Klang Road which has a contract value of more than RM220m. The company was also recently awarded a RM710.1m construction contract for a residential development project, which represents the largest ever contract won from an external party. The company has an experienced management team led by Executive Chairman Datuk Tee Eng Ho, having more than 30 years of experience in civil and building construction.

Risk factor. (1) Failure to secure new projects. (2) Unexpected project cancellations, delays, or postponement of projects. (3) Unanticipated increases in construction costs for projects. (4) Prolonged Covid-19 pandemic.

Source: Mercury Securities Research - 30 May 2022