KERJAYA’s 1QFY23 results met expectations. YoY, it reported a slight improvement in EBIT as contributions from new projects secured at better rates (reflecting the higher cost of various inputs) more than offset higher labour cost. YTD, it has secured RM0.5b worth of jobs, on track to meet our full-year target of RM1.5b.
Kenanga Research maintains their forecasts of the TP of RM1.50 with an OUTPERFORM call.
Within expectations: 1QFY23 core net profit of RM29.4m only made up 20% each of both our full-year forecast and the full-year consensus estimate. However, Kenanga considers the results within expectations as they expect strong quarters ahead as for progress billings from its RM4.5b order book accelerate, and it will put onto the market two new property projects with immediate contributions.
1QFY23 dividend declared of 2.0 sen is also seen as being on track to meet Kenanga’s full-year forecast of 6.0 sen.
YoY, 1QFY23 turnover eased 1% due to slower progress of works despite the higher number of jobs on hand. Nonetheless, EBIT improved 2% as contributions from new projects secured at better rates (reflecting the higher cost of various inputs) more than offset the higher labour cost. Due to marginally higher financing costs and effective tax rate (+1ppt), core net profit came in flat.
QoQ, 1QFY23 turnover increased 3% from higher progress of construction work activities. Nonetheless, gross profit contracted 21% from a high base in the preceding quarter (due to recognition of certain lumpy cost savings). Core net profit rose 2% on higher other incomes but offset by lower administrative and financing costs, as well as a reduced effective tax rate.
YTD, KERJAYA has secured RM533.4m worth of jobs, on track to meet Kenanga’s RM1.5b target (vs company’s more conservative target of RM1.2b). It has strong replenishment prospects from: (i) building jobs by its sister companies i.e. E&O and KPPROP, (ii) industrial warehouse/factories, and (iii) MNC factories from its JV with Samsung.
Meanwhile, it will put onto the market by 2HFY23 two new property projects, i.e. Monterez Shah Alam and Yakin Land with a total GDV of RM630m. As it has already started the sub-structure works, buyers could be billed almost immediately upon launching.
Kenanga continues to like KERJAYA for: (i) its innovative construction solutions and lean cost structure that translate to above-average margins, (ii) its hands-on management team and track record of strong execution, and (iii) its ability to consistently win external jobs and the availability of job orders from related parties (E&O, KPPROP).
Risks to Kenaga’s call include: (i) further deterioration in the prospects for building jobs, (ii) rising input costs, and (iii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD).
