Kerjaya Prospek Group - Bucking Soft Building Construction Sector

Date: 
2024-03-01
Firm: 
KENANGA
Stock: 
Price Target: 
1.90
Price Call: 
BUY
Last Price: 
1.70
Upside/Downside: 
+0.20 (11.76%)

KERJAYA’s FY23 results met expectations. Its FY23 core net profit jumped 20% thanks to improved construction billings and a new property project. Its sizeable outstanding order book of RM4.2b and new property launches will drive earnings growth.

We keep our forecasts, TP of RM1.90 and OUTPERFORM call.

KERJAYA’s FY23 core profit of RM132.m met expectations. It declared 4th interim NDPS of 2.0 sen (ex-date: 19 Mar; payment- date: 05 Apr) totalling YTD FY23 NDPS to 8.0 sen (FY22A: 6.0 sen) which is the same as our projection.

YoY, its FY23 revenue jumped 30% on higher construction (+27%) and property billings (+873% to RM28.4m from RM2.9m, largely from its new project The Vue @ Monterez). However, its core net profit only grew 20% due to slight cost pressures (including, we believe, from marketing expenses for the new property project) and a higher effective tax rate.

QoQ, its 4QFY23 revenue grew 35% on accelerated construction and property billings. However, its core profit was flattish due to lumpy marketing expenses for the new property project and a higher tax.

The key takeaways from its results briefing are as follows:

1. YTD, it has secured a total of RM377.8m worth of four new jobs in FY24, against our new job win assumption of RM1.5b (which is the same as in-house target). The four new jobs are all related party transactions (RPT), i.e., three projects are from E&O (Not Rated) and one project from KPPROP (Not Rated).

2. Currently, its outstanding order book stands at RM4.2b with 25 on-going projects. Out of the RM4.2b order book, 46% or RM1.9b is RPT.

3. Its current tender book of RM2.0m-RM3.0b with majority of them in residential projects (RPT makes up half of them) while it also targeted 2-3 industrial projects worth a total of more than RM1b.

4. The Vue @ Monterez (GDV: c.RM300.0m) reported a take-up rate of c.60% as at end-Dec 2023 while Papyrus @ North Kiara is poised for the soft launch in 1HFY24 with an estimated GDV of RM500m.

Forecasts. We keep our FY24F forecasts and introduce our FY25F numbers.

Valuations. We keep our SoP-TP of RM1.90 (see next page) valuing its construction business at 14x forward PER, at a discount to the 18x we ascribed to large contractors (i.e. GAMUDA, IJM, and SUNCON) given KERJAYA’s focus on the high-rise building sector, currently weighed down by oversupply in the office and residential segments.

There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us (see Page 3).

Investment case. We continue to like KERJAYA for: (i) its innovative and hence high-margin formwork construction method, (ii) its lean and hands-on management team with a strong execution track record, (iii) its strong earnings visibility underpinned by a sizeable outstanding order book and recurring orders from related companies (such as E&O, KPPROP). Maintain OUTPERFORM.

Risks to our call include: (i) further deterioration in the prospects for building jobs, (ii) rising input costs, and (iii) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 1 Mar 2024

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