Results Review

• Excluding an one-off gain amounting to RM1.7mn, KERJAYA’s FY23 core earnings of RM130.6mn came in marginally below our expectations but met consensus’ forecasts, accounting for 93.7% and 96.9% of ours and the street’s estimates, respectively. The negative deviation was primarily attributed to lower-than-expected construction margin.

• A fourth interim dividend of 2.0sen/share was declared, bringing the YTD dividend to 8.0sen/share. (FY22: 6.0sen/share)

• YoY, FY23 revenue and PBT advanced by 29.9% and 18.9% to RM1.5bn and RM177.4mn, respectively, thanks to higher revenue recognition from the construction segment and increased contribution from The Vue @ Monterez project.

• QoQ, 4QFY23 revenue jumped 35% to RM489mn, primarily due to higher progress of construction work activities. However, the core PBT only registered a moderate growth of 1.2%, margins were impacted by the provisions for project delays. Briefing Highlights:

• The group is confident in achieving its construction order book replenishment target of at least RM1.6bn for FY24. As of the current year to date, total contract wins for FY24 amount to approximately RM377.8mn.

• Despite a marginal decline in the FY23 core PAT margin to 9% from 10.3%, attributed to lower-margin projects, the company reiterates its optimistic view that the core PAT will recover to around 11% in FY24, supported by stabilised input costs.

• The overall sector outlook is poised to continue improving further, driven by the accelerating recovery of construction activities previously halted due to the Covid outbreak. The robust sector prospects are anticipated to benefit KERJAYA in securing more external construction jobs to strengthen its order book.

Impact

• For house keeping purposes, we tweak our FY24/25F mildly by 0.1% and 0.3%, respectively. We introduce our FY26F earnings estimates, representing an earnings growth of 11.5%.

Outlook

• The group’s current outstanding construction order book is around RM4.2bn, translating to about 2.9x FY23 revenue. Meanwhile, the group has an active tender book of up to RM2.0bn.

Valuation

• We assign a higher target PER of 15x to value KERJAYA, up from 13x previously. The new target PER represents a 30% discount to the average target PER of 21x assigned for mid-to-large-cap construction players within our coverage universe. We believe this is justified by KERJAYA’s solid earnings visibility, consistent and robust replenishment of its order book and the potential growth in industrial property construction leveraging the partnership with Samsung.

• After roll forward valuation base year to CY25 earnings, we arrive at a new target price of RM1.95 (from RM1.64). Upgrade the stock to Buy.

Source: TA Research - 1 Mar 2024