• Keep BUY, new MYR1.50 TP from MYR1.42, 25% upside with c.3% yield. Kerjaya Prospek, together with its JV partner Samsung C&T, has won a MYR1.5bn contract from Texas Instruments Electronics Malaysia (TIEM) to execute and complete TIEM2 bump/probe/AT factory construction at Taman Perindustrian Batu Berendam, Free Trade Zone, Melaka. The contract will take from 21 Nov, and be in effect for 28 months.

• Further contract details. This is the first job win under the framework agreement established between KPG and Samsung C&T in June. Taking into consideration KPG’s 30% stake in the JV, the contract value attributable to the group would be MYR436m – to be internally funded with its war chest of MYR214.6m (as at 30 Jun). This brings KPG’s FY22 YTD new job wins to c.MYR1.8bn according to management – and boosts its outstanding construction orderbook to MYR4.4bn, translating into an orderbook-to- revenue cover ratio of 4.5x. NPM for the said contract could be in the high single digits to low teens.

• Outlook. We think that the latest job win is timely – with KPG already in the process of bringing in an additional 500 workers. It also aims to bring in another batch of 1,500 workers later this year or early next year – which will enable it to gear up for more jobs and operate optimally. For the upcoming 3Q22 results, we believe that core net profit could grow by 15-25% YoY to MYR28-30m. This would be backed by higher progress billings, in view of its increased working capacity, as c.200 workers were already on their way to Malaysia in late August.

• Earnings. As the latest job win has brought its contract replenishment value to c.MYR1.8bn (which includes smaller contracts that were not publicly announced) – we revise our job replenishment assumptions to MYR1.9bn (from MYR1.6bn) for FY22, MYR1.3bn (from MYR1bn) for FY23, and MYR1.2bn (from MYR800m) for FY24. Therefore, we also lift FY22-24F earnings by 3%, 4% and 2%.

• Valuation. Post earnings revision, we arrive at a new SOP-derived TP of MYR1.50 after applying a 0% ESG premium to our SOP-derived intrinsic value, based on our in-house ESG proprietary scoring. Our unchanged target P/E of 11x (c.10% discount to KLCON index’s forward P/E) is ascribed to the construction segment in our SOP valuation, to reflect KPG’s smaller market capitalisation. Upcoming catalysts are further opportunities in infrastructure contracts under Seri Tanjung Pinang Phase 2, which will amount to about MYR2bn in the next 5-7 years. KPG is trading at an undemanding 9.3x FY23F P/E, at -1.5SD from the KLCON 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 - 27 Oct 2022