KERJAYA has won a new contract worth RM211.6m bringing its YTD replenishment to c.RM1.0b which is within our replenishment target of RM1.2b for FY18. Maintain BUY with a TP of RM1.40. pegged to unchanged valuation of 11.0x PER on FY19E construction earnings. The valuation ascribed to KERJAYA is at the higher end of our small-mid caps' PER range of 6-11 x due to their excellent delivery track record of no delays in project delivery, better margins compared to the other players and zero exposure to government jobs. 

KERJAYA announced that they have secured a building contract worth RM211.6m from PPB Hartabina Sdn Bhd (PPBH) a subsidiary of PPB Group Berhad. Construction works for the thirty-one-storey service apartment, a nine storey car park podium with common facilities, as well as a block of four-storey office/commercial units with two-level basement car park and commercial units are expected to commence on 8th Dec 2018 and complete by 8th June 2021 or in 30 months. 

The latest win brings its year-to-date jobs secured to c.RM1.0b which makes up 83% of our replenishment target of RM1.2b. Assuming a conservative pre-tax margin of 15%, we expect the project to contribute RM31.7m in pre-tax profit over the next 30 months. The replenishment will bring its outstanding order-book to c.RM3.1 b with 2-2.5 years earnings visibility. 

Overall sentiment for the construction sector remains weak due to the cost review on mega infrastructure projects. However, we believe KERJAYA is the least affected due to their zero exposure to government-related jobs, and anticipating another replenishment worth c.RM400.0m from Dato' Tee's (KERJAYA's major shareholder) private property arm as they are looking to launch a mixed development in Old Klang Road with GDV of RM 1.0b. We also believe that KERJAYA stands a good chance of winning more contracts in Penang mainly from E8,0's Seri Tanjung Pinang 2 (STP2) project as we believe more bridges are required to connect Penang Island and STP2.

Source: Rakuten Research - 6 Dec 2018