Valuation / Recommendation

Results were above expectations, achieving 112.1% and 110.5% of our full year revenue and profit forecasts for FY22 due to improved progress on construction work activities.

We maintain a BUY recommendation on Kerjaya Prospek Group Bhd with a revised TP of RM1.46 (up from RM1.33) based on FY23F EPS 10.1 sen and PE of 14.5x in line with the 2-years average. We like the stock for its strong order book and track record. The company has recently secured another approval for 1000 additional foreign workers which is expected to arrive within 2Q23. 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 RM245.0m as of February 2023 (up from RM215.0m), which allows the company the potential capacity to undertake more projects moving forward.

Healthy order book. The company was also, in the recent quarter awarded a RM398.0m construction contract for coastal protection structure from Tanjung Pinang Development Sdn Bhd (TPD). With the acceptance of the LOA from TPD, YTD contract win will amount to RM533.4m.

Kerjaya has an outstanding order book of RM4.7bn as of February 2023 (RM1.7b from related parties and RM613.0m from infrastructure projects), which should provide earnings visibility over the next 5 years. The company has a tender book of between RM1.5bn to RM2.0bn focused on building jobs, and a tender success rate of more than 20%, that if successful will increase the order book. We estimate an annual target order book replenishment of RM1.5bn to RM1.8bn in FY23.

Proven track record. The company has an experienced management team led by Non-Independent Non-Executive Chairman Datuk Tee Eng Ho, having more than 30 years of experience in civil and building construction. 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 Astrum Ampang and Bloomsvale Old Klang Road which has a contract value of more than RM500m. Notable projects such as the Lucentia Residence and Megah Rise which has a contract value of more than RM200m was completed in 1H22.

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 - 20 Mar 2023