• Keep BUY and MYR1.44 TP, 19% upside with c.4% FY23F yield. We expect Kerjaya Prospek’s 4Q22 core earnings to increase by 4-10% QoQ to MYR30-32m, backed by an improved labour supply – which translates to a FY22 earnings growth of >20% YoY. Aside from venturing into industrial jobs, its property segment should see the launch of a project via a JV with Yakin Land (GDV: MYR380m) in 1H23. Valuations are undemanding, with the stock trading at -1.5SD below the KLCON index’s 5-year mean P/E.

• Job flows. In FY22, KPG secured MYR1.8bn worth of new jobs – a tad lower than our MYR1.9bn replenishment assumption for the year. This is the highest annual job win ever recorded by the group. On a separate note, FY23 also saw a good start, with KPG’s 49%-owned subsidiary, Kerjaya Bina BMK clinching a MYR135m contract, of which MYR66m is attributable to KPG (c.5% of FY23 new job win target of MYR1.3bn), for a design-and- build job from BBCC Development for a proposed development project in Kuala Lumpur. As such, its latest unbilled orderbook is estimated to be at c.MYR4-4.3bn, providing earnings visibility of up to four years.

• Labour supply update. KPG has fully received the 280 workers from Nepal which gradually started to enter Malaysia since Aug 2022. Meanwhile, the earlier-approved 500 headcount in 3Q22 already saw 405 Bangladeshi workers coming into the country. Latest checks indicate that an additional 1,500-foreign worker headcount had been approved by the Government, with 690 already waiting to enter. Going forward, we believe that KPG should have enough workers to meet its manpower requirements.

• Outlook. Samsung C&T’s collaboration with KPG is likely to focus on industrial jobs in the semiconductor space. Recall that KPG and Samsung C&T together won a contract worth MYR1.5bn from Texas Instruments for a factory back in Oct 2022. Nevertheless, we do not rule out the possibility of it securing a data centre-related job due to the bright outlook for data centres in Malaysia (see our 27 Jan report titled Some Bright Spots But Overall Volatility Remains for more details). This is premised on Samsung C&T’s experience in providing construction services for IGIS Asset Management’s data centre in Hanam, South Korea.

• No changes to our earnings estimates as we expect higher progress billings in 4Q22 in light of the improved labour supply, while the latest job win is within our FY23 replenishment assumption of MYR1.3bn. Therefore, our SOP-derived TP remains at MYR1.44 after applying a 0% ESG premium/discount to our SOP-derived intrinsic value, based on our in-house ESG proprietary methodology. We favour KPG due its upbeat prospects, backed by a sizeable MYR1.5-2bn tenderbook coupled with a net cash pile of >MYR200m as at end-3Q22. Further earnings upside may come from the job pipeline related to Seri Tanjung Pinang Phase 2 – with c.MYR2bn worth of projects to be executed in the next 5-7 years.

• Key risks: Potential labour shortages and a slow job replenishment rate.

Source: RHB Research - 7 Feb 2023