KERJAYA Prospek has secured the RM398 million coastal protection structure job for Seri Tanjung Pinang Phase 2 (STP2). Kenanga Research has stated in its Company Update that it remains mildly positive on this win which raised its YTD replenishment to RM464m and lifted its outstanding order book to an all-time high of RM4.7 billion. The research house continues to like KERJAYA for its innovative and hence, high-margin construction methods. Hence the research house has maintained its forecasts, target price (TP) of RM1.50 and OUTPERFORM call.
Second contract for the year. Kerjaya has secured a RM398 million contract from Tanjung Pinang Development S/B to undertake construction works for a coastal protection structure at Phase 2B and 2C at Seri Tanjung Pinang, Penang. This 36-month contract will commence from 10 April 2023.
Kenanga is mildly positive of this win which has raised its YTD replenishment to RM464 billion, accounting for 31% of its forecast for financial year 2023 (FY23F) replenishment target of RM1.5 billion and lifted its outstanding order book to an all-time high of RM4.7 billion. It also expects this new contract to fetch c.10% margins, in line with its overall group assumption.
Major reclamation works at STP2 yet to be awarded. The bulk of the reclamation works at STP2 which involves sand filling and foundation strengthening for the upcoming coastal protection structure (which will act as a perimeter for the reclaimed island) is still not awarded. Based on the 507 acres to be reclaimed, we estimate the remaining reclamation works to be worth c.RM1b with KERJAYA being a strong contender for the job.
Kenanga Research has maintained its forecasts and SoP-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 ESG given a 3-star ESG rating given by Kenanga.
KERJAYA is given OUTPERFORM rating by the research house due to factors, such as, 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; its ability to consistently win external jobs and the availability of job orders from related parties (E&O, KPPROP).
Risks identified include, further deterioration in the prospects for building jobs; rising input costs; project cost overrun and liabilities arising from liquidated ascertained damages (LAD).
