• Stay BUY, with new MYR1.56 TP from MYR1.50, 22% upside and c.7% FY24F yield. Kerjaya Prospek secured a subcontract worth MYR203m (effective share: MYR142m) from the Samsung C&T (Samsung)-Kerjaya Prospek (KP) 70:30 JV for the concrete structure works of a factory in Batu Berendam Melaka. Profitability wise, we expect the job to fetch a PAT margin of 10%. Our observation suggests this job relates to the Texas Instruments factory whereby the main contract worth MYR1.4bn was awarded to the Samsung-KP JV in Oct 2022.

• This is KPG’s seventh contract win for FY23F – bringing its YTD job wins to MYR1.2bn (effective share) or 92% of our initial FY23 job replenishment target of MYR1.3bn. As such, we estimate the group’s latest outstanding orderbook to be at MYR4.7bn – translating into earnings visibility of up to four years. In terms of job replenishment breakdown, around 36% of the YTD FY23 new job wins came from Eastern & Oriental’s (EAST MK, BUY, TP: MYR0.55) Seri Tanjung Pinang Phase 2 (STP2) via two separate contracts (Figure 1).

• Potential job opportunities for the remainder of FY23 may come from STP2’s second development project – Arica (GDV: MYR200m) estimated at c.MYR200m together with other property development projects. Chances to secure the Arica project is high as KPG is currently involved in the construction of The Meg, the first development project under STP2 for a contract value of MYR265m. The currently has a tenderbook size MYR1.5- 2bn comprising mainly property projects. In the longer run, we believe KPG could stand a fair chance to do the reclamation works for Andaman Phase 2 of 507 acres (part of STP2) that has yet to commence any significant reclamation works. The group was involved in the reclamation and coastal protection structure works of Andaman Phase 1 for a cumulative job value of c.MYR380m. Meanwhile, jobs for industrial buildings – particularly via KPG’s partnership with Samsung C&T may likely come in 1H24.

• We revise our FY23F-25F earnings upwards by 1-4% as we tweak our FY23 job replenishment assumptions to MYR1.5bn from MYR1.3bn based on the aforementioned job opportunities. As a result, we arrive at a new SOP-derived TP of MYR1.56 (from MYR1.50), incorporating a 0% ESG premium/discount based on our in-house ESG proprietary scoring. With a plethora of bright prospects underpinning its job replenishment trends, we view the stock to be undervalued at 9.9x FY24F P/E, or trading -1.5SD from the Bursa Malaysia Construction Index’s 5-year mean.

• A major catalyst includes further job replenishments under Bukit Bintang City Centre (BBCC) (c.MYR600m jobs awarded to date) where the 80- storey BBCC Signature Tower could be a surprise win – IJM Corp (IJM MK, NEUTRAL, TP: MYR1.74) seen as the frontrunner.

• Key downside risks: property market slowdown and prolonged cost material pressures.

Source: RHB Securities Research - 29 Sept 2023