Research houses are assured by the bright prospects of Kerjaya Prospek Group Bhd (Kerjaya Prospek), underpinned by its job replenishment trends, and anticipation of higher quarterly profit.
RHB Investment Bank (RHB IB) believed with the plethora of bright prospects, there is more room for the stock to trade higher than its 13x FY24F P/E.
In Malaysia Results Review today (Jan 17), the research house also expects Kerjaya Prospek to post a 4Q23 net profit of RM33 to RM36 million, which is 23 to 34% higher year-on-year (YoY) – backed by higher progress billings and improved contribution from the property segment.
RHB IB said that putting aside the Seri Tanjung Pinang Phase 2 (STP2) development in Penang which may guarantee the flow of jobs to Kerjaya Prospek – it view that there are other opportunities for the group from various angles.
“With it already securing RM1.4 billion worth of jobs in Batu Kawan under Aspen Group Holdings (ASPEN SP, NR) – the group could stand a chance in bidding for industrial building jobs by ASPEN.
“The reason being ASPEN, via Aspen Vision Properties Sdn Bhd, has a stake in Global Vision Logistics Sdn Bhd – the developer of the 71-acre Shah Alam International Logistics Hub (SAILH).
“By virtue of past job wins by Kerjaya Prospek from ASPEN, a job under SAILH (particularly Phase 2) could not discounted, especially with the collaboration between the group and Samsung C&T Corporation,” it said.
It added collaboration with Samsung C&T may enable it to leverage on the incoming investments in the technology sector.
Other pocket of opportunities may stem from Eastern & Oriental Bhd’s (E&O) (EAST MK, BUY, TP: MYR0.88) Elmina West development, with an estimated baseline gross development value (GDV) of RM1.5 billion as KPG has secured a RM25 million job in 3Q23 for Elmina West.
“In our view, KPG may be able to secure more jobs in Elmina West,” RHB IB said.
Recently, Kerjaya Prospek secured RM111.8 million job win from Kerjaya Prospek Property Bhd (KPPROP) for the construction of a 52-storey service apartment in Setapak, Kuala Lumpur.
The group’s fourth contract win FY24 shall commence in January 2024, with a construction period of 40 months.
“This brings the total year-to-date (YTD) FY24 job wins to RM378 million which makes up 25% of our RM1.5 billion FY24 job replenishment target.
“The latest job win also boosts the group’s total construction orderbook to RM4.7 billion, which is its earnings visibility of four years,” said RHB IB.
The research house said there are no changes to our earnings estimates as the latest announced job win is within its FY24 job replenishment assumption.
“However, we are ascribing a higher target P/E of 14x from 12.5x for the construction arm to reflect the level Kerjaya Prospek was trading at during the mid-2017 construction upcycle.
“Moreover, the group’s 13x FY24F P/E is still below the revised target P/E,” it said.
As a result, it reiterates its BUY call and arrives at a new SOP-derived TP of RM1.93 from RM1.75, 14% upside and 5% yield, after baking in a 2% ESG premium.
Meanwhile, Kenanga Research is positive on the latest contract win for Kerjaya Prospek. The win also marked 25% the research house’s full year FY24 assumption for YTD win of RM1.5 billion.
In a Company Update today, Kenanga said the group’s tender book stands at RM2 billion comprising of building and reclamation jobs from its sister companies, such as Eastern & Oriental Bhd (E&O) and KPPROP.
“(Besides that), multinational company (MNC) industrial warehouse and factories (via its joint venture with Samsung C&T Corporation), and third-party building jobs in the Klang Valley,” it said.
Consequently, Kenanga maintains its OUTPERFORM rating, its earnings forecasts, and TP of RM1.90.
“We keep our SoP-TP of RM1.90 valuing its construction business at 14x forward PER, at a discount to the 18x we ascribed to large contractors such as GAMUDA, IJM, and SUNCON).
“Given Kerjaya Prospek’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.
The research house continues to like Kerjaya Prospek for its innovative and hence high-margin formwork construction method, its lean and
hands-on management team with a strong execution track record, its strong earnings visibility underpinned by a sizeable outstanding order book and recurring orders from related companies such as E&O and KPPROP.
The risks to Kenanga’s call include further deterioration in the prospects for building jobs, rising input costs, and liquidated ascertained
damages (LAD) from cost overrun and delays.
