• Keep BUY, with new MYR1.42 TP from MYR1.45, 21% upside and c.3% yield. Kerjaya Prospek entered into a framework agreement with Samsung C&T for the purpose of, amongst others, to regulate the parties’ relationship in relation to future business opportunities on any potential construction projects in Malaysia. We believe the framework agreement is a positive step for the company to possibly widen its wings to more sophisticated projects compared current projects that are mainly related to property.

• An ally with a proven track record. Samsung C&T is a wholly-owned subsidiary of Samsung C&T Corporation (SCTC), a South Korean construction and engineering company listed on the Korean Stock Exchange. The competency and credibility of SCTC in the construction sector is reflected in its involvement of constructing super high rise projects such as the Burj Khalifa in Dubai. Other notable involvements comprise of infrastructures such as the Incheon Bridge and Busan Newport. As for Malaysia, notable projects built by SCTC consist of the KLCC Petronas Twin Towers, Menara Maxis and Star Residences while ongoing projects include the PNB118 and Lot LL1M project by KLCC.

• Standard rules of engagement. The minimum value of a contract to be considered as a target project by both KPG and Samsung C&T is MYR300m. Assuming a target project is decided to be pursued by both parties, the nature of the framework agreement will be made known to the tender organiser. If the target project is awarded to either KPG or Samsung C&T, a JV agreement for the said project will then be formed between both parties. Overall, the framework agreement shall remain in force for a period of five years, which will be automatically renewed on a rolling basis for subsequent periods of one year.

• Impact towards KPG. Such framework agreement will enable KPG to leverage on the international expertise and strengths of Samsung C&T, as it brings with it the capabilities in value engineering, advanced construction technologies, and a wide range of expertise to complement the construction of more challenging and complex projects. This framework is further solidified through the private placement of 25,239,000 new ordinary shares in KPG, at an issue price of RM1.60/share to Vista Contracting (whereby SCTC is also a shareholder) and Investment Global Pte Ltd. Bulk of the placement proceeds of MYR40.4m will be used for KPG’s working capital.

• Earnings and valuation. No changes are made to our estimates. Following the dilution effect from the private placement exercise, we arrive at a new TP of MYR1.42 (from MYR1.45) for our SOP valuation. Key downside risks include a slowdown in the property market, higher raw material cost pressures and lower-than-expected new contract wins. Our TP also includes a 0% ESG premium/discount given our ESG score of 3.00, using our in-house methodology.

Source: RHB Research - 10 Jun 2022