• Keep BUY, new TP of MYR1.44 from MYR1.50, 27% upside with c.4% yield. Kerjaya Prospek’s 9M22 core earnings missed our estimate (70% of our full-year projection), but are in line with the Street’s expectation (77% of the full-year forecast). Our outlook remains positive – backed by its MYR1.5- 2bn tenderbook, and coupled with a lean balance sheet. Further earnings upside may come from another launch of a property development project via a JV with Yakin Land by 1HFY23 (earlier target: end-FY22) with an estimated GDV of MYR380m.

• Results review. The construction segment recorded a PAT of MYR28.3m (+16.2% YoY) in 3Q22, on a revenue of MYR258.7m (+16.3% YoY). Its numbers were backed by higher progress billings from increased construction activities – with the PAT margin remaining strong at 10.9%. On the other hand, the property development division saw a smaller after-tax loss of MYR0.1m (3Q21 after-tax loss: MYR0.2m) in 3Q22, amid the soft launch of The Vue @ Monterez project (GDV: MYR250m) earlier in June. All in, 9M22 core earnings rose 33.3% YoY to MYR89m.

• Outlook. KPG’s YTD job wins stand at MYR1.8bn – which is not too far from our forecast of MYR1.9bn. We believe that this is achievable, given its net cash pile of MYR213.7m as at end-3Q22, in addition to its framework agreement with Samsung C&T which won its first job in October. In terms of labour, KPG was already bringing in c.200 foreign workers from Nepal in August, while it received approval for another 500 foreign workers which should arrive within 4Q22. KPG then plans to bring in another batch of 1,500 workers later on, which should help it operate optimally. Overall, we estimate KPG’s latest construction orderbook to be at c.MYR4.5-4.6bn (after including the MYR436m contract won from Texas Instruments Electronics Malaysia in late October), translating into an orderbook/revenue cover ratio of c.4.7x.

• Earnings and valuation. As its earnings missed our earlier estimates, we are cut FY22-24F net profit by 6%, 8% and 8%, post imputing more conservative margin assumptions and lower revenue adjustments made for the property segment. Our TP drops to MYR1.44, after applying a 0% ESG premium/discount to our SOP-derived intrinsic value, based on our in-house ESG proprietary methodology. Our unchanged target P/E of 11x (a 10% discount to KLCON index’s forward P/E) is ascribed to the construction segment in our SOP valuation, to reflect KPG’s smaller market capitalisation. This target P/E is fair, given KPG’s commendable earnings visibility of nearly five years (vs average of three years). Rerating catalysts: Further opportunities in infrastructure contracts under Seri Tanjung Pinang Phase 2 (STP2), which amount to c. MYR2bn in the next five to seven years. KPG is trading at an undemanding 9.5x FY23F P/E, at -1.5SD from the KLCON index’s 5-year mean P/E.

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

Source: RHB Research - 30 Nov 2022