• Overview. Kerjaya’s 2Q20 core net profit fell 70.3% yoy to RM11.6m on the back of lower revenue by 50.6% yoy caused by all segments. On qoq basis, core net profit dropped by 54.4% due to the similar reason mentioned.
   
• Key highlights. Despite lower margins recorded, we remain positive on the company as we reckon the lower margins were dragged by higher opex to comply with SOP requirement, and not caused by higher construction costs.
   
• Against estimates: Below. Kerjaya’s 6MFY20 core net profit of RM36.9m came in behind both our and consensus’ forecast at 35% and 33% respectively. The key setback was mainly from the impact of nonactivity in April period due to MCO and works only resumed at a slow pace in May. Property segment posted lower profit of RM741k (-86.5% YoY) in 6MFY20 weighed by the high completion of its projects in FY19.
   
• Outlook. Despite earnings coming in lower than our estimates, we expect Kerjaya’s earnings to accelerate in 2HFY20 as most of the key projects (Bloomsvale, Aspen and BBCC) are currently operating at preMCO level. In addition, Kerjaya is upbeat of adding another RM500m of job in 2H20, possibly by external awards. Nevertheless, Kerja’s solid orderbook of RM5.3bn (internal and external awards) will provide earnings visibility for the next 3 years. Given this we raise our earnings for FY20 and we conservatively reduce our FY21 and FY22 earnings.
   
• Post-earnings adjustment, we reduce TP to RM1.30 (from RM1.32) based on SOP valuations, tagged to 12x PE. We believe Kerjaya’s earnings growth is backed by solid outstanding orderbook backlog of RM5.3b which will provide earnings visibility for the next 3 years. Maintain BUY.

Source: BIMB Securities Research - 28 Aug 2020