RHB Research has maintained its “BUY” rating on Kerjaya Prospek and a target price (TP) of MYR1.42, with 24% upside with c.3% yield. Kerjaya Prospek’s 1H22 core earnings are broadly in line with the research house’s forecast, at 46% of the full-year projection, but missed the Street estimate. Its outlook remains positive – the group’s MYR1.5-1.6bn orderbook replenishment target could likely be within reach, amidst a lean balance sheet as well as the upcoming launch of a property development project (GDV: MYR380m) via a JV with Yakin Land and the land owner by end FY22.
Results review. The construction segment recorded a PAT of MYR57.7m (+43% YoY) in 1H22, on a revenue of MYR574m (+25% YoY). This was backed by higher progress billings stemming from the pick-up in construction activities, as well as the margin recalibration for certain projects that were completed such as Megah Rise in Petaling Jaya. On the other hand, the
property development segment booked a 73% YoY drop in 1H22 PAT, as the soft launch of The Vue @ Monterez project (GDV: MYR250m) only took place in June. All in, 1H22 core earnings rose 35.3% YoY to MYR57.4m.
Outlook. YTD job wins stand at MYR1.3bn, which is not too far from the target of MYR1.5-1.6bn. It is believed that this is achievable, given KPG’s war chest or net cash pile of MYR214.6m as at 30 Jun, in addition to its framework agreement with Samsung C&T – whereby 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. In terms of labour, KPG is in the midst of bringing in about 200 foreign workers from Nepal, while another 500 foreign workers have been approved by the Government and should arrive in the next 1-3 months. KPG will then plan to bring in another batch of 1,500 workers later on, which should help the group operate at more optimal levels. Overall, as at end-1H22, its construction orderbook stands at MYR4.3bn, translating into an orderbook/revenue cover ratio of c.3.8x.
Earnings and valuation. The research house makes no changes to its estimates, as KPG’s earnings are broadly in line with our projections. As such, its TP remains at MYR1.42 after applying a 0% ESG premium/discount to its SOP-derived intrinsic value, based on our in-house ESG proprietary scoring. Unchanged target P/E of 11x (at a 10% discount to the KLCON index’s forward P/E) is ascribed to the construction segment in our SOP valuation, to reflect KPG’s smaller market capitalisation. Rerating catalysts would stem from further opportunities in infrastructure contracts under Seri Tanjung Pinang Phase 2 (STP2), which amount to c. MYR2bn in the next 5-7 years. Valuations are also undemanding, as KPG is trading at 9.2x FY23F P/E, which is 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.
