• BUY, new MYR1.71 TP from MYR1.78, 15% upside. Kerjaya Prospek’s9M23 core profit of MYR97.1m (+9.6% YoY) is broadly in line with ourestimate but trailed the Street projection – at 71% and 69% of full-yearprojections. We forecast a 3-year earnings CAGR of 15%, backed by itssteady job replenishment prospects. Its FY24F dividend yield is at anattractive c.6%, as management targets to declare DPS of 2 sen per quarterin FY23 – which is on track, as YTD dividends stand at 6 sen per share.

• Results review. The construction segment recorded a PAT of MYR41.3m(+46% YoY) in 3Q23, backed by higher progress billings from ongoing jobs.As such, the PAT margin for the construction segment remained fairly strong,at 12% for 3Q23 (3Q22: 10.9%). Meanwhile, the property development unitbooked a PAT of MYR2.8m (3Q22 after-tax loss: MYR0.1m) in 3Q23, backedby property sales for The Vue @ Monterez project (GDV: MYR250m) withc.35% sold (signed sales and purchase agreement) as of end 3Q23. Theproperty arm is expected to contribute more in FY24, following the launch ofthe Papyrus @ North Kiara project (GDV: MYR500m) in 1Q24.

• KPG’s outstanding orderbook as at end-3Q23 stood at c.MYR4.3bn (3.8xcover ratio) after excluding the MYR404m job by Ecofirst Consolidated(ECOF MK, NR). ECOF, via its subsidiary BCM Holdings, informed KPG thatBCM does not consider itself to be bound by the terms previously agreedupon for the said job. KPG will be taking necessary steps to enforce its rightto recover the pre-agreed damages payable stated in the initial contract forthe MYR404m job. We understand that KPG has not mobilised anyresources for this job – which means YTD earnings did not reflect anyprogress billings from BCM.

• Nevertheless, we think that KPG remains in the sweet spot to securemore jobs in the coming months – backed by its MYR2bn tenderbook, whichnot only consists of residential buildings, but also data centres andsemiconductor-related facilities which could be clinched via its collaborationwith Samsung C&T. Short-term prospects may come from the Arica projectwith a MYR400m GDV (the second development project under Seri TanjungPinang phase 2 (STP2)) worth c.MYR200m. In light of this, we deem itsvaluation as undemanding, as the stock is trading at -1.5SD from the BursaMalaysia Construction Index’s 5-year P/E mean.

• We cut FY23-25F earnings by 3%, 5% and 5% following the net effect of:i) Revising our FY23 job replenishment target to MYR1.3bn (from MYR1.8bn)to reflect conservatism, in addition to the exclusion of the MYR404m job fromBCM; and ii) a higher sales assumption for its property arm. Still, FY23Fearnings growth remains above 10%. Its effective YTD job wins totalMYR1.2bn, but we believe that KPG could likely win small contracts by theyear-end. Post earnings adjustment, we arrive at a new SOP-derived TP ofMYR1.71 (from MYR1.78), which also includes a 0% ESG premium/discount,based on our in-house ESG proprietary scoring. Key downside risks:Property market slowdown and prolonged cost material pressures.

Source: RHB Securities Research - 22 Nov 2023