Kenanga IB has recently increased the Target Price of Kerjaya Prospek to RM3.10, with assumptions on a conservative basis. I, personally forecasted a near term Target Price of RM4.00, after my thorough research based on a number of strong catalysts as follows:
1. Huge Orderbook – Strong Earnings Visibility With orderbook of approximately RM2.7b, the earnings visibility for Kerjaya is strong for the next few years. Management has set a conservative RM800m orderbook replenishment target for 2017 (in UOB Kay Hian Research Report), which should be easily surpassed given its strong track record of securing orders.
2. Better Margins over Peers Kerjaya’s net margins of 12% remain superior over peers’ (MITRA, HSL, KIMLUN) average of 9%.
3. Beneficiary from Premium Client Portfolio Including E&O, Eco World, SP Setia, Yong Tai, BCB, etc. KWAP has recently injected RM776M into E&O’s STP Phase 2A for a 20% stake. The collaboration of E&O and KWAP to jointly develop STP Phase 2A project in Penang would expedite the contract awarding process and is poised to benefit KERJAYA given that E&O has been a long term client of KERJAYA.
4. Construction Theme KL Construction Index (KLCON) had climbed to a new high of 25.43 times - its highest since its lowest PER of 5.8 times in 2011 alongside with recent lifting of share performance for index heavyweights such as IJM and Gamuda.
5. Technical Breakout Kerjaya share price has been surging recently and break its major resistance at RM2.50. The upwards momentum seems sustainable and will continue to go up North, I believe.
6. Increase Share Liquidity In my humble opinion that Bonus share issue shall be one of the best approach to allow more participation of new shareholders. It again enhances the upward momentum.
With the reasons above, I believe my Target Price of RM4.00 is rather realistic, which I think it is achievable in a short period of time with the strong momentum of broad market in KLSE despite my belief that more and more positive and good quarter results achievement by the majority construction and property listed Companies.
Apart from buying mother shares, I’m also recommending its Call Warrant, Kerjaya-CA, at less than 10% premium, with an expiry date on Sept 2017. It’s at discounted price with low premium compared to the call warrants in comparable companies with similar expiry date, such as IJM-C4 at 13% premium and Gamuda-C34 at 12% premium.
With its gearing of 4.8 times, assume Kerjaya mother share price goes up to RM3.50 from RM 3.00 (up by 17%), the Kerjaya-CA will go up by 82%. If the Kerjaya goes up to RM4.00 (up by 33%), the Kerjaya-CA will go up by 158%. Of course, it comes with higher risk. But if you believe KERJAYA has great potential and it deserves for a higher price, it is good to have KERJAYA-CA to be in your portfolio too.
BULL MARKET- NON-AWARENESS OF STRUCTURE CALL WARRANT: KERJAYA -CA Stock: KERJAYA-CA Code: 7161-CA Style: European-style cash settled Issue Size: Up to 35M SW Exercise Ratio: 2.5 SW 1 shall be entitled to 1 Kerjaya [KP] Share Listing Date: 14th March 2017 Exercise Price: RM 2.60 Expire Date: 29th September 2017 Issue Price: RM 0.15, being (i) 15.12% of the Reference Price divided by (ii) the Exercise Ratio, rounded up to the nearest half sen. Settlement Method: Cash Settlement Exercise Date: On the Expire Date i.e. 29/09/2017 Exercise Expenses = [Settlement Price - Exercise Price] / Exercise Ratio x 0.30%
Intrinsic Value [IV] Calculation = [Settlement Price – Exercise Price] / Exercise ratio Market Trading Price = Intrinsic Value [IV] + Volatile Value [VV]
Note: Volatile Value is depending some of the following factors: * (i) Bull perceptions * (ii) Foreseeable of Kerjaya’s prospectus and substantial growth * (iii) Time Value Factor * (iv) Bonus issue of KP, if any etc.
Illustration: Based on Closing Date on 11/04/2017
(1) Kerjaya Share Price (as of 11 April 2017) RM 2.91 Kerjaya-CA Price (as of 11th April 2017): RM 0.205
Intrinsic Value of Kerjaya-CA = (RM 2.91-RM 2.60) / 2.5 IV = 0.31/ 2.5 = 12.4 sen.
Premium [Violatile Value/ Time Value] = 20.5 sen – 12.4 = 8.1 sen. Gearing = Price of Mother Share / (Exercise Ratio x Price of Call Warrant) = RM 2.91 / (2.5 x RM 0.205) = 5.68 x I
The gearing 5.68 x I means that instead of buying one mother share at current price, you are able to use the same capital to buy its CA in which represent 2.68 units of the Mother Share.
llustration Scenario (2) IF Kerjaya share is RM 3.50. IV = [ RM 3.50 – RM 2.60 ] / 2.5 = RM 0.36
Market value for Kerjaya-CA = RM 0.36 + RM 0.09 = RM 0.45
Note: Based on same VV at RM 0.09 sen.
(3) IF Kerjaya share is RM 4.00. IV = [RM 4.00 – RM 2.60] / 2.5 = RM 0.56
Market value for Kerjaya CA = RM 0.56 + RM 0.09 = RM 0.65
Note: Based on the same assumption that VV is at RM 0.09 Sen.
I hope my demonstration and research above may be useful and can help you understand better the mechanism of Structure Call Warrants. Please refer to Kerjaya-CA time sheet, listing information and profile from Bursa Malaysia website. I believe this may be a simple illustration to attract investor or newbie to learn, understand and enhance awareness of the Structure Call Warrant.
Reference: Please refer to Master Sifu Icon888’s his recent article which was posted on 1st April 2017 – “Add Sprinkles of Call Warrants to Spice Up Your Portfolio“. His remarkable quote "The strategy is interesting not only it makes your portfolio sxxier. It also opens up a new universe for retails investor like us in terms of exposure to blue chips”
thanks calvinteo for your detailed write ups, however i think RM 4.00 is too much of a price...unless the coming results can be better than previous year.
I actually bought KERJAYA-CA price @ 0.20 few days ago. After cited the detailed information provided by calvinteo and the up-coming STP 2 Project, I believed RM3.5 would not be an issue for near term. If RM4 really possible, i really should continue buying more KERJAYA-CA!!! Thanks for the information shared !
mother share cornered by IB sold CA at a pretty 150% profit and add more mother to ride to 3.50... keekeeekeee..cash rich, STP2 project waiting for goodies..
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
smartInvestor1
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Posted by smartInvestor1 > 2017-04-05 15:03 | Report Abuse
hahaha very happy earning profit