• Keep BUY and MYR2.15 TP, 19% upside with c.6% FY24F yield. Kerjaya Prospek’s 1Q24 core profit of MYR36.9m (+31% YoY) made up 23% and 22% of our and Street full-year projections. We deem its results as in line with expectations, since more contributions may come from its ongoing projects in the coming quarters. We forecast a 3-year earnings CAGR of 12%, backed by its steady job replenishment trend coupled with stronger contributions from its property development business. Its FY24F dividend yield is also attractive at c.5% (higher compared to most peers).

• Results review. The construction segment recorded a PAT of MYR145.7m (+11.5% YoY) in 1Q24, backed by higher progress billings from ongoing jobs. Likewise, PAT margin for the construction arm remained strong at 9.9% in 1Q24 (1Q23: 9.9%). Meanwhile, the property development unit recorded a PAT of MYR0.8m (1Q23 after-tax loss: MYR0.2m) in 1Q24, backed by property sales for The Vue @ Monterez project (GDV: MYRc.300m) with a c.70% take-up rate (signed sale & purchase agreements) as of end-1Q24. The property arm is expected to contribute more in FY24, following the soft launch of the Papyrus @ North Kiara project (GDV: c.MYR500m) in March.

• We estimate KPG’s outstanding orderbook at c.MYR4.5bn (3x cover ratio). So far, it has secured c.MYR980m worth of new jobs YTD (65% of our FY24 job replenishment target of MYR1.5bn). The group’s current tenderbook of MYR1.5-2bn still mainly consists of high-rise buildings, but management indicated that there are around three jobs (particularly industrial ones) under its partnership with Samsung C&T. Seri Tanjung Pinang phase 2 (STP2) in Penang still may offer ample opportunities – with more upcoming property launches such as service apartments called The Lume (GDV: MYR689m) – which may likely be undertaken by KPG.

• Other opportunities may stem from Eastern & Oriental’s (EAST MK, BUY, MYR1.38) Elmina West development (estimated baseline GDV: MYR1.5bn). Recall that KPG secured a MYR25m job in 3Q23 to undertake earthworks for this development in Elmina West. We view this project as important for EAST to mitigate its single-location risk, and gathered from management that EAST is looking to expedite this project in 2H24. Taking these factors into account, we view the stock’s FY24F P/E of 13x as undemanding vs the KLCON index’s P/E of 16-17x during the 2017 construction upcycle.

• No changes to our earnings estimates as results met expectations. Therefore, our SOP-derived TP to MYR2.15 (which bakes in a 2% ESG premium) is unchanged. A major catalyst for KPG includes earlier-than- expected wins in the industrial building space and further involvement in Penang-related projects such as the Penang International Airport expansion.

• Downside risks: Property market slowdown and prolonged cost pressures.

Source: RHB Research - 30 May 2024