Kerjaya Prospek (KPG MK, BUY, TP: MYR1.45) – Better Growth Despite Underperformance; BUY
The research house has reiterated ‘BUY’ call on this KP, new revised target price (TP) of MYR1.45, with 25% upside with c.3% yield. 1Q22 core earnings missed consensus’ estimates at 17% and 21% of full-year projections. The negative deviation came from the 14.7% YoY rise in cost of sales amid pricier building materials. Yet, the outlook remains positive – the MYR1.5bn orderbook replenishment target could likely be within reach amidst Kerjaya Prospek’s lean balance sheet, coupled with the launch of property development projects by 1H22 with a combined estimated GDV of MYR630m.
Results review. The construction segment recorded a PAT of MYR28.2m (+15.3% YoY) in 1Q22 on revenue of MYR297.7m (+11.5% YoY) amid higher progress billings from increased construction activities. Conversely, the property development segment saw a 3% YoY PAT growth during this quarter amid absence of new development projects. All in, 1Q22 core
earnings rose 9.3% YoY to MY28.8m.
Construction orderbook still has room to grow. YTD job wins are just MYR27m short of KPG’s earlier FY22 job replenishment target guidance of MYR1.2bn. The group is now guiding for new FY22 job wins of MYR1.5bn or more – not too far from our job replenishment target of MYR1.6bn. It is deemed possible, as KPG is not reliant on public infrastructure jobs but rather focuses on infrastructure works for related parties, eg Eastern & Oriental (EAST MK, NEUTRAL, TP: MYR0.50). In addition, property launches are expected to gradually pick up in the coming quarters. As at end 1Q22, KPG’s construction orderbook stands at MYR4.4bn, translating into an orderbook/revenue cover ratio of c.3.7x.
Earnings and valuation. FY22F-24F earnings is revised downward post-results by -28%, -24%, and -18% as the analysts impute more conservative margins assumptions to reflect high building material costs – previously awarded jobs were exposed to material price fluctuations. Delay risks also cannot be ruled out, as KPG is facing manpower shortages to the tune of 20-30% vis-à-vis normal levels. The analysts’ also roll forward their valuation base to FY23F. Consequently, the house arrives at our new MYR1.45 TP after applying a 0% ESG premium/discount to our SOP-derived intrinsic value based on their in-house proprietary ESG scoring. The research house unchanged 11x target P/E (15% discount to the KLCON Index’s forward P/E) is ascribed to the construction segment in our SOP valuation to reflect pressures from high input costs and the labour shortage surrounding the sector. Re-rating catalysts: Further opportunities in infrastructure contracts under Seri Tanjung Pinang Phase 2 or STP2, which amounts to c. MYR2bn in the next 5-7 years.
Key downside risks: Slowdown in the property market, higher raw material cost pressures, and lower-than-expected new contract wins.
Genting Malaysia (GENM MK, BUY, TP: MYR3.45) – Slight Miss, But Recovering Well; Stay BUY
The research house put a ‘BUY’ call on this counter, with new MYR3.45 SOP-derived TP from MYR3.58, presents a 16% upside, c.5% yield. Genting Malaysia posted 1Q22 adjusted EBITDA of MYR414m and a core net loss of MYR88m, as revenue slipped from a seasonally stronger 4Q21. Its various segments continued to recover in 1Q22, while Genting SkyWorlds is showing a promising start. The house believes GENM will post sequential earnings improvements as tourism activity continues to pick up throughout the year.
Slight miss. 1Q22 adjusted EBITDA of MYR414m made up 14% and 17% of consensus’ full-year estimates, while bottomline came in at a core net loss of MYR88m vs our FY22F core profit estimate of MYR1b and Street’s MYR787m. It is deemed to be a slight miss, mainly weighed down by lower-than-expected 1Q22 revenue from Malaysia.
Showing promising recovery. Although GENM’s gaming revenue softened 10% QoQ against a seasonally stronger 4Q21, the gaming revenue of MYR1.3b currently stands at c.68% of pre-pandemic levels and appears on track to fully recover by next year, at the latest. Non-gaming revenue is at its highest since 1Q20, currently at 58% of the 2019 quarterly average. Adjusted EBITDA softened 44% QoQ mainly due to the seasonality factor and higher payroll costs from the ramping up of SkyWorlds.
Upbeat on prospects across various segments. Management stated that Genting SkyWorlds had c.3k daily visitors (maximum: 20k daily) in April/May. Currently, 15 out of 19 rides are open, with the rest to be opened progressively over 2022, as GENM continues to ramp up the theme park. Resorts World Genting’s hotel has opened 5,000 of its 10,500 available rooms, and is running at an 88% occupancy rate. It is expected continuous improvement across GENM’s segments, with the return of foreign workers and as countries transition into the endemic phase. In the US, there should be sequential quarterly improvements from a soft 1Q22, which was weighed by cold weather and Omicron. GENM’s associate, Empire Resort’s (ER) mobile sports betting app has yet to contribute in 1Q22 after Mar 2022 launch, but is complementing the existing suite of offerings at Resorts World Catskills.
Key risks: Slowdown in COVID-19 recovery, changes in luck factor, and regulatory risks.
