• Still BUY, with new MYR1.93 TP from MYR1.75, 14% upside and c.5% yield. We expect Kerjaya Prospek to post a 4Q23 net profit of MYR33-36m – 23-34% YoY higher – backed by higher progress billings and improved contribution from the property segment. With a plethora of bright prospects (mentioned below) underpinning its job replenishment trends, we believe there is more room for the stock to trade higher than its 13x FY24F P/E.

• Separately, KPG announced its fourth job in FY24 worth MYR112m for a proposed development in Setapak awarded by Kerjaya Property. This brings the total YTD FY24 job wins to MYR378m which makes up 25% of our MYR1.5bn FY24 job replenishment target. The latest job win also boosts the group’s total construction orderbook to MYR4.7bn (earnings visibility of four years).

• Putting aside the Seri Tanjung Pinang Phase 2 (STP2) development in Penang which may guarantee the flow of jobs to KPG – we view that there are other opportunities for the group from various angles. With it already securing c.MYR1.4bn worth of jobs in Batu Kawan under Aspen Group Holdings (ASPEN SP, NR) – KPG could stand a chance in bidding for industrial building jobs by ASPEN. The reason being ASPEN, via Aspen Vision Properties, has a stake in Global Vision Logistics – the developer of the 71-acre Shah Alam International Logistics Hub (SAILH) and by virtue of past job wins by KPG from ASPEN, a job under SAILH (particularly Phase 2) could not discounted, especially with the collaboration between KPG and Samsung C&T.

• Other pocket of opportunities may stem from Eastern & Oriental’s (EAST MK, BUY, TP: MYR0.88) Elmina West development (estimated baseline GDV: MYR1.5bn). Recall that KPG has secured a MYR25m job in 3Q23 to undertake earthworks for the said development in Elmina West. In our view, KPG may be able to secure more jobs in Elmina West as the development is important for EAST to mitigate single-location risk.

• No changes to our earnings estimates as the latest announced job win is within our FY24 job replenishment assumption. However, we are ascribing a higher target P/E of 14x (from 12.5x) for the construction arm to reflect the level KPG was trading at during the mid-2017 construction upcycle. Moreover, the group’s 13x FY24F P/E is still below the revised target P/E. As a result, we arrive at a new SOP-derived TP of MYR1.93 which bakes in a 2% ESG premium. All in, KPG’s collaboration with Samsung C&T may enable it to leverage on the incoming investments in the technology sector and likely data centres (Samsung C&T constructed IGIS Asset Management’s 40MW date centre in Vietnam).

• Further catalysts include securing jobs beyond STP2 in Penang especially in Batu Kawan, and larger-than-expected wins from the industrial space.

• Key downside risks are a property market slowdown and prolonged cost material pressures.

Source: RHB Research - 17 Jan 2024