Kerjaya Prospek (KPG MK)’s 1H23 core profit of RM61.5m trailed RHB Research (RHB) and Street estimates, making up only 44% and 42% of full year projections as initial progress billing assumptions were too optimistic.
“We forecast a 3-year earnings compounded annual growth rate of 15% backed by its steady job replenishment prospects,” said RHB in the recent Malaysia Results Review Report.
The construction segment recorded a Profit After Tax (PAT) of RM30.9m in 2Q23, backed by higher progress billings from ongoing jobs. As such, PAT margin for the construction segment remained fairly strong at 10% for 2Q23.
Meanwhile, the property development segment saw a loss-after-tax (LAT) of RM0.2m in 2Q23, mainly due to marketing expenses related to the soft launch of The Vue @ Monterez project (GDV: RM250m) with no revenue recognised yet.
Nevertheless, the property arm is expected to record sales from 3Q23 derived from the Monterez project, followed by the Papyrus @ North Kiara project (GDV: RM500m) in 1Q24 after its launch scheduled in 3Q23.
“KPG’s outstanding orderbook as at end 2Q23 stood at RM4.7bn (includes a variation of orders from Gurney Marine Bridge and the factory job with Samsung C&T in Melaka), which provides earnings visibility of up to four years,” said RHB.
KPG has won RM915m worth of new jobs thus far. RHB views the incoming job wins for 2H23 to come from the Arica project with a RM400m GDV (the second development project under Seri Tanjung Pinang phase 2 worth RM200m).
KPG is currently involved in the construction of The Meg, the first development project under STP2 for a contract value of RM265m. The group currently has a tenderbook size RM1.5-2bn comprising mainly property projects.
“Jobs for industrial buildings – particularly via KPG’s partnership with Samsung C&T may likely come in 1H24. Nevertheless, we are of the view its outstanding orderbook of RM4.7bn is enough to keep the group well occupied,” said RHB, maintaining the Buy rating and the Target Price of RM1.50.
Key catalysts include subcontract awards from Gamuda for the Silicon Island reclamation works as KPG has worked with GAM for the Gurney Marine Bridge, and further involvement in Eastern & Oriental’s mixed development venture in Elmina West. Key downside risks are such as the property market slowdown and prolonged cost material pressures.
