KERJAYA has secured its first contract win in FY25, a building contract worth RM256.4m from sister company E&O (Not Rated).

This makes up 14% of our FY25 job replenishment assumption of RM1.8b. Its current outstanding order book which stands at RM4.2b will keep them busy for the next three years. We keep our earnings forecasts unchanged, TP of RM2.21 and MARKET PERFORM rating which is supported by decent dividend yield of c.4%.

First job in FY25. Yesterday, KERJAYA announced that its wholly-owned subsidiary, Kerjaya Prospek (M) Sdn Bhd has been awarded a RM256.4m contract by sister company E&O for building works for a proposed development in Elmina West, Shah Alam, Selangor. The project, which covers over three phases, includes the construction of 360 units of 3-storey terrace houses, alongside a clubhouse, landscaping works and other related infrastructure. The contract works will start in Jan 2025 with a construction period of 26 months.

Outstanding order book of RM4.2b. We are positive on this first job win for FY25 of RM256.4m, against our FY25 job replenishment assumption of RM1.8b (and management's target of RM1.5b). Its current total outstanding order book stands at RM4.2b which will keep them busy for the next three years. Meanwhile, its current tender book of RM4b comprises RM2b building jobs (70% are RPT) and RM2b industrial job including data centre and logistic warehouse jobs.

Forecasts. Forecasts maintained with job win assumptions of RM1.6b and RM1.8b for FY24 and FY25, respectively.

Valuations. We maintain our SoP-driven TP of RM2.21 (see Page 2) valuing its construction business at 12x forward PER, at a discount to the 22x 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 4).

Investment case. We continue to like KERJAYA for: (i) its innovative and hence high-margin formwork construction method (c.10% net margin), (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) of at least RM1b a year. We maintain our MARKET PERFORM rating which is supported by decent dividend yields of 4%, based on its regular dividend payout.

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 - 7 Jan 2025