• Keep BUY, new MYR2.57 TP from MYR2.45, 36% upside. Kerjaya Prospek’s 1H24 core profit of MYR75m (+22% YoY) makes up 46% and 43% of our and Street full-year projections. We deem results as in line, as more contributions will come from its ongoing projects in the coming quarters, in addition to stronger property development contributions. We forecast a 3-year (FY23- 26) earnings CAGR of 14%, backed by steady job flows from Penang and the Klang Valley. KPG’s FY24F dividend yield is also at an attractive c.5% (higher than that of most peers).

• Results review. The construction arm recorded a PAT of MYR44m (+43% YoY) in 2Q24, backed by higher progress billings from ongoing jobs – leading to a higher PAT margin of 11.8% (2Q23: 10%). Meanwhile, the property development segment recorded a PAT of MYR3.7m for 2Q24 (2Q23 loss- after-tax: MYR0.2m), backed by property sales for The Vue @ Monterez project (GDV: MYRc.300m) and Papyrus @ North Kiara project (GDV: c.MYR500m) with take-up rates – with signed sale and purchase agreements – of c.70% and close to 40% as of end-2Q24.

• KPG’s construction orderbook as of 26 August is c.MYR4.4bn (3x cover ratio). KPG has secured c.MYR1.3bn worth of new jobs YTD (vs our FY24 initial job replenishment target of MYR1.5bn). It has tenders worth c.MYR2bn spread across 3-4 property building jobs, while another MYR2bn is related to industrial jobs, of which 90% are data centres. Management believes that the new job wins in FY24 may surpass MYR1.5bn. Therefore, we are adjusting our FY24 new job win target to MYR1.8bn from MYR1.5bn, which we believe may come from property jobs in the Klang Valley.

• Medium- to near-term opportunities. Penang still offers ample opportunities – such as dredging and reclamation works for phases 2B and 2C of Seri Tanjung Pinang Phase 2, which could be over MYR500m. Eastern & Oriental’s (EAST MK, BUY, MYR1.38) land in Elmina West (66 acres) could likely see the first launch of 360 stratified landed terrace houses in FY25 followed by >110 shophouses in FY26. Recall that KPG has secured a MYR25m job in 3Q23 to undertake earthworks for said development in Elmina West. All in, we view the stock’s FY25F P/E of 13x to be undemanding vs the Bursa Malaysia Construction Index’s P/E of 16-17x recorded during the 2017 construction upcycle.

• While we revise our FY24 job replenishment target to MYR1.7bn from MYR1.5bn, the works to be awarded between now and the year-end may only bring meaningful contributions from FY25 onwards. Hence, we make no changes to our FY24F earnings but adjust our FY25-26 projections by +3% and +4%. With that, we arrive at a new SOP-derived TP of MYR2.57 (from MYR2.45) which bakes in a 2% ESG premium. A rerating catalyst would be an earlier-than-expected win for new industrial jobs before FY25.

• Downside risks: Property market slowdown and prolonged cost pressures.

Source: RHB Research - 28 Aug 2024