• Keep BUY and MYR1.42 TP, 24% upside and 3% yield. Kerjaya Prospek accepted a letter of award from Bangsar Hill Park Development for the contract involving the main building works for a proposed residential development project at Lot 365, Lorong Maarof, Seksyen 96, Bandar Kuala Lumpur for a total contract value of MYR154.7m. The proposed residential development project is expected to commence on 15 July 2022 for a period of 35 months.

• Impact towards KPG. This latest contract win marks the fourth job secured in FY22 by the group, bringing its construction orderbook to MYR4.3bn. This translates into an orderbook/revenue cover ratio of 4.4x – higher than the average of 3.0x of listed contractors under our coverage. More importantly, this latest job award brings the YTD job wins to MYR1.3bn. Management guided that the net profit margin for this job is between 10-12%. On further scrutiny, KPG’s construction orderbook replenishment was at MYR1bn for only two years between FY16 and FY21 (Figure 1). With six months left in FY22, we believe KPG can take on more jobs given its net cash position of MYR197m as of 31 Mar 2022.

• Outlook. Management cited that it has no plans to venture into the public infrastructure space. Instead, KPG continues to focus on private infrastructure projects which diversifies its overall outstanding orderbook. The private infrastructure projects include, but are not limited to the Gurney Marine Bridge (MYR202.6m) and Coastal Protection Structure (MYR154.4m) for the Seri Tanjung Pinang Phase 2 (STP2) development awarded by Tanjung Pinang Development, a subsidiary of Eastern & Oriental (EAST MK, NEUTRAL, TP: MYR0.50). Recall that Eastern & Oriental is a related party of KPG. In the long run, prospects for KPG are underpinned by opportunities from STP2 with approximately MYR2bn worth of projects targeted to be rolled out in the next 5-7 years. So far, KPG has secured six contracts related to STP2 worth a total of c.MYR845m.

• Earnings estimates. No changes are made to our estimate as the latest job win is within our job replenishment assumption of MYR1.6bn for FY22F. As such, our SOP-derived TP is maintained at MYR1.42, which includes a 0% ESG premium/discount based on our ESG score of 3.00, using our in- house methodology. Our BUY call for KPG is premised on the group’s ability to consistently win new jobs and its net cash position which allows it to purchase materials in cash, providing good rebates that partly mitigate the pressure of rising building material costs. Valuation is rather undemanding as KPG’s implied FY22F P/E of 11.7x is 0.5SD below the KLCON Index’s 5-year historical mean P/E.

• Key downside risks include a slowdown in the property market, higher raw material cost pressures and lower-than-expected new contract wins.

Source: RHB Research - 21 Jun 2022