KERJAYA has clinched the building job for a 31-storey serviced apartment known as SWNK Houze in Bukit Bintang City Centre (BBCC), the fourth in this development. This win accounts for 4.4% of Kenenga Research’s financial year 2023 (FY23) replenishment assumption of RM1.5 billion and lifted its outstanding orderbook to RM4.2 billion.
The research house has stated in its Company Update report that it continues to like KERJAYA for its innovative and hence, high-margin construction methods. Hence, it maintains its forecasts, target price (TP) of RM1.50 and OUTPERFORM call.
First contract in 2023. Kerjaya through its 49%-owned associate Kerjaya Bina BMK has won a RM135.4 million building contract (effective value: RM66.3 million) from BBCC Development Sdn Bhd to undertake construction works for SWNK Houze, a 31-storey serviced apartment alongside its basement and podium comprising a 7-storey car park, main lobby and multipurpose hall. This 36-month contract will commence from 1 March 2023.
The research house is mildly positive of this win which makes up 4.4% of its forecast for financial year 2023 (FY23F) replenishment target of RM1.5 billion which lifts its outstanding order book to RM4.2 billion. It expects that this new contract to fetch c.10% margins, in line with its overall group assumption.
More to come from BBCC. BBCC’s remaining high-rise components comprise of, one residential tower; one office block; and the 80-storey BBCC signature tower.
Kenanga has also stated that it “believes Kerjaya stands a good chance in securing the last residential tower and office block as these developments share the same podium with SWNK Houze; SR Tower – in which Kerjaya is currently constructing; and Lucentia Residence (which Kerjaya completed in 2021). It also believes the two remaining jobs have a contract sum quantum of approx. RM400-500 million.
The research house has maintained its OUTPERFORM rating on Kerjaya. On top of that it has also maintained its forecasts and SoP-derived TP of RM1.50 backed by its construction PER of 13x, at a discount to the 14-18x we ascribed to medium and large cap contractors (Gamuda, IJM and Suncon) as KERJAYA’s order book still predominantly comprises high-rise building jobs which faces a national oversupply issue. There is no adjustment to our TP based on a 3-star ESG rating.
KERJAYA has the strengths of its innovative construction solutions and lean cost structure that translate to above-average margins; its hands-on management team and track record of strong execution; and its ability to consistently win external jobs and the availability of job orders from related parties (from E&O, KPPROP).
Risks to identified include further deterioration in the prospects for building jobs; rising input costs; and project cost overrun and liabilities arising from liquidated ascertained damages (LAD).