Analysts are positive on Kerjaya Prospek Group Bhd’s (Kerjaya Prospek) latest 170.9 million job from Persada Mentari Sdn Bhd, an indirect subsidiary of Eastern & Oriental Bhd (E&O) to undertake a proposed Andaman Island development project.
The development project, also known as Seri Tanjung Pinang Phase 2 (STP 2), covers the construction of main building works for, amongst others, a 45-storey structure comprising a 38-storey serviced apartment block of 380 units.
It is expected to be completed within 35 months from Jan 18, 2024.
RHB IB said this is Kerjaya Prospek’s fifth job win from Persada Mentari and the former’s 13th job related to the Andaman Island under the STP2 development in Penang.
“On further scrutiny, we learnt that this job relates to the Arica project with gross development value (GDV) of RM400 million, which is E&O’s second serviced residence project at Andaman Island after The Meg@Andaman Island.
“This brings its latest outstanding orderbook to RM4.5 billion translating to earnings visibility of up to four years. Meanwhile, the RM170.9 million job makes up 11% of our FY24 job replenishment target of RM1.5 billion for Kerjaya Prospek.
“In total, the group has so far secured MYR1.7 billion (effective share) and RM1.4 billion worth of contracts under STP2 and other projects related to the Batu Kawan area – highlighting its prominence in Penang,” it said in its Malaysia Company Update today (Jan 4).
However, RHB IB said there are no changes to its earnings estimates as the group’s latest job win is within our FY24 job replenishment assumption.
“However, we are taking the opportunity to adjust our ESG score to 3.1 from 3 to reflect its involvement in Andaman Island Phase 1 which attained the GreenRE Platinum Provisional Certification under the township category.
“As a result, we arrive at a new SOP-derived TP of MYR1.75. Taking into consideration the prospects, we view its valuation to be undemanding as the stock is trading at -0.5SD from the Bursa Malaysia Construction Index’s 5-year mean P/E.”
Aside from the new TP of RM1.75 from RM1.71, 11% upside and 6% FY24F yield, the research house also keeps its BUY call.
RHB IB also believed that STP 2 could provide continuity of job flows for KPG over the next 5 to 7 years, worth RM2 billion.
“STP2 is divided into Andaman Phase 1 (253 acres) and Phase 2 (507 acres). The group was involved in the reclamation structure works of
Andaman Phase 1 for a cumulative job value of RM230 million.
“With Andaman Phase 2 yet to begin any significant reclamation works, we believe it stands a fair chance to do the reclamation works for this phase of STP2 along with some small connecting bridges within the said development,” it added.
Similarly, Kenanga also viewed the latest job positively, expecting a PAT margin of 10%, for the contract.
In its Company Update today (Jan 4), the research house said this is the group’s first contract win in FY24, against Kenanga’s full-year job win assumption of RM1.5 billion.
“Meanwhile, its tender book stands at RM2 billion comprising building and reclamation jobs from its sister companies, for example E&O and Kerjaya Prospek Property Bhd, MNC industrial warehouse and factories (via its joint venture (JV) with Samsung C&T Corporation), and third-party building jobs in the Klang Valley,” it said.
Thus, Kenanga maintains its OUTPERFORM rating and its earnings forecasts.
“We keep our SoP-TP of RM1.67, valuing its construction business at 14x forward PER, at a discount to the 18x.
“We ascribed to large contractors such as Gamuda Bhd, IJM Corporation Bhd and Sunway Construction Group Bhd given the group’s focus on the high-rise building sector currently weighed down by oversupply in the office and residential segments.
“There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us,” it said.
