- Keep BUY, with new MYR1.48 TP from MYR1.44, 25% upside and 4% yield. Kerjaya Prospek’s FY22 core earnings of MYR115.5m (+19% YoY) met our expectations, making up 97% of full-year projections but missed Street at 93%. Outlook remains positive – backed by its MYR1.5-2bn tenderbook size, coupled with a net cash pile of MYR245m. Moreover, its venture into the industrial building segment via its partnership with Samsung C&T Corp serves as a strategic buffer should jobs from the property market face a slowdown.
- Results review. The construction segment recorded a PAT of MYR119.2m (+22% YoY) in FY22, backed by higher progress billings from increased construction activities. As such, PAT margin for the construction segment remained strong at 10.6% for FY22 (FY21: 10.1%). On the other hand, the property development segment saw a loss after tax of MYR0.5m (FY21 PAT: MYR0.2m) in FY22, mainly due to marketing expenses related to the soft launch of The Vue @ Monterez project (GDV: MYR250m) in Jun 2022. Meanwhile the launch of the Yakin Land Development project (GDV: MYR380m) is slated to take place in 2H23.
- Outlook. We learnt that out of the 1,500 foreign workers approved in 3Q22, almost 700 have arrived between Oct 2022 and Feb 2023 while the remainder is expected to come in Mar 2023. In addition, Kerjaya Prospek also received the approval for another 1,000 workers which may come in May or Jun 2023, bringing Kerjaya’s potential manpower capacity to c.4,000 workers. With such manpower capacity, the company would be able to recognise higher progress billings from its MYR4.7bn orderbook (4.2x cover ratio) as at 7 Feb while gearing up for new jobs. While it is partnering with Samsung C&T to bid for sophisticated industrial jobs in the technology industry such as data centres, KPG is also eyeing other industrial property jobs such as warehouses. To date, it has secured MYR464m (after taking into account the effective share in each contract) worth of new jobs in FY23, making up 35.7% of our MYR1.3bn FY23 job replenishment assumption.
- Earnings and valuation. As earnings met expectations, we make no changes to our earnings estimates. We are also introducing our FY25F earnings which entails a job replenishment target of MYR1.3bn. Our SOP- derived TP is revised to MYR1.48 (from MYR1.44) after updating the net cash figures in our SOP valuation and incorporating a 0% ESG premium/discount to our intrinsic value, based on our in-house ESG proprietary scoring. Rerating catalysts are further opportunities in infrastructure contracts under Seri Tanjung Pinang Phase 2 (STP2), which should amount to c.MYR2bn in the next 5-7 years. In light of the bright prospects, valuation is undemanding as the stock is trading at -1SD below Bursa Malaysia Construction Index’s 5-year mean P/E.
- Key downside risks: Slowdown in the property market, higher raw material cost pressures and lower-than-expected new contract wins.
Source: RHB Research - 28 Feb 2023
