• BUY with MYR2.15 TP, 18% upside with c.4% FY24F yield. Kerjaya Prospek has secured a job from Tanjung Pinang Development (TPD), an indirect subsidiary of Eastern & Oriental (EAST MK, BUY, TP: MYR1.38) to undertake the execution and completion of reclamation and dredging works for Phases 2B and 2C of Seri Tanjung Pinang Phase 2 (STP2) for a contract worth MYR567.7m. Works, expected to commence in July, are scheduled to be completed within 40 months.

• Orderbook impact. This is KPG’s 17th job related to the Andaman Island under the STP2 development in Penang. We believe this job award is timely, as KPG began works for the coastal protection structure for Phases 2B and 2C of STP2 in Feb 2023 (which are still ongoing and expected to end). Taking this latest job win into consideration, KPG has secured MYR2.4bn worth of contracts under STP2. We estimate KPG’s latest outstanding orderbook to be c.MYR4.8bn post new job win for STP2 – translating into earnings visibility of four years. YTD, the group has clinched c.MYR980m in new contracts – making up 65% of our FY24 job replenishment estimate of MYR1.5bn for KPG. In the long run, STP2 could provide continuity in job flow for KPG over the next 5-7 years, with projects worth around MYR2bn.

• Is there more we can expect from Penang? We do not discount the possibility of KPG (together with its partner Samsung C&T) eyeing the contract for Penang International Airport extension works (total value of MYR1.5bn divided across three work packages). We understand that KPG’s partner Samsung C&T, via a consortium with a Taiwanese company, had secured a USD1.6bn contract for expansion works at the Taiwan Taoyuan Airport in Mar 2021. Other pockets of opportunity include securing projects in Batu Kawan, as the group has also won c.MYR1.4bn worth of jobs (awarded by Aspen Group) related to the said area

• Icing on the cake would be additional lines for the Penang Light Rail Transit (LRT). Penang Chief Minister Chow Kon Yeow has expressed his hope for the Komtar-Tanjung Bungah line to be built in the next phase of the Penang LRT. Should this materialise, we expect to see better connectivity to the areas near STP2 – particularly Tanjung Tokong, as an LRT line may likely go through the said area in order to be linked to Tanjung Bungah.

• No changes to our earnings estimates as the latest job win is within our FY24 job replenishment assumption. Therefore, our SOP-derived TP of MYR2.15 remains put (and bakes in a 2% ESG premium). We still regard KPG’s market valuation of 13x FY25F P/E as unjustified, as the counter was trading at c.14x during the 2017 construction upcycle before the firm ventured into industrial jobs. New wins from the industrial space (ie factories, warehouses and data centres) may act as a positive rerating catalyst.

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

Source: RHB Research - 28 May 2024