Secures a Building Job Worth RM170.9mn on Andaman Island

KERJAYA has accepted a letter of award for a contract worth RM170.9mn from Persada Mentari Sdn Bhd, an indirect subsidiary of Eastern & Oriental Bhd (E&O).

The project mainly covers the construction and execution of main building works for the proposed development of a 45-storey structure comprising a 38- storey serviced apartment block of 380 units, a 2-storey basement carpark and a 5-storey elevated carpark.

The construction works are expected to commence on 18 January 2024 and will take 35 months to complete from the commencement date.

It is deemed a recurrent related party transaction as KERJAYA’s nonindependent non-executive chairman, Datuk Tee Eng Ho, is E&O's executive chairman and indirect major shareholder of E&O.

Our View

This is the first construction job secured by KERJAYA in 2024, bringing the total outstanding order book to RM4.5bn currently, equivalent to 4.0xFY22 revenue.

Assuming a gross margin of 14%, the project is estimated to generate RM17.0mn of net earnings throughout the construction period. KERJAYA is not unfamiliar with Andaman Island as the group previously won a few jobs on the island.

Forecast

Maintain our FY23 to FY25 earnings forecasts as the job win is within our FY24 order book replenishment assumption of RM1.6bn.

Valuation

We take this opportunity to increase the target PE multiple for KERJAYA from 12x to 13x as we believe the group will continue benefiting from the strong growth in Andaman Island. The development of Phase 1 of Andaman Island will take at least another 15 years with an estimated total GDV of RM17.0bn. Following the upgrade of the target PE multiple, we tweaked the target price higher from RM1.52 to RM1.64, based on 13xCY24 earnings. Maintain a Hold call on the stock.

Source: TA Research - 4 Jan 2024