Secures Two Jobs Worth RM95.1mn in Penang

KERJAYA has accepted two letters of award (LOA) for two contracts worth RM69.2mn and RM25.9mn from Tanjung Pinang Development Sdn Bhd and Persada Mentari Sdn Bhd, respectively, which both are indirect subsidiaries of Eastern & Oriental Bhd (E&O).

The first LOA, totalling RM69.2mn, covers the execution of the superstructure works on Gurney Marine Bridge Phase 2 and should be completed within 24 months from January 22, 2024. Subsequently, the second LOA, valued at RM25.9mn, involves the piling and sub-structure contract works for the proposed 50-storey serviced apartment comprising 261 units on Andaman Island. This service apartment contract is expected to be completed within 12 months from January 22, 2024.

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

Having secured the second and third jobs in 2024, KERJAYA's total outstanding order book reached RM4.6bn as of 8 January, 2024, equivalent to 4.1 times the FY22 revenue.

Assuming a gross margin of 14%, the project is projected to contribute a net profit of RM9.3mn throughout the construction period. KERJAYA is not unfamiliar with Andaman Island as the group previously won a few jobs on the island.

Forecast

We maintain our earnings forecasts as the job wins are within our FY24 order book replenishment assumption of RM1.6bn.

Valuation

We maintain our TP of RM1.64 based on a PER 13x CY24 EPS. However, considering the recent strength in its share price performance, we believe the stock is currently fairly valued. Hence, we downgrade our recommendation from Hold to Sell due to the potential total return falling below our required rate of 7%.

Source: TA Research - 9 Jan 2024