3QFY20 CNP of RM24.5m brings 9MFY20 CNP to RM62.2m – below our and consensus estimates due to lower-than- expected construction revenue billings arising from lockdown compliance. A 1.5 sen dividend declared is within our 3.0 sen forecast. As progress at its construction sites runs risk of intermittent shut downs, impeding optimal construction works, we conservatively trim our FY20E/FY21E earnings by 14%/16% on lower revenue recognition. Lower SoP-derived TP to RM1.25 but keep OP.

Below expectations. 3QFY20 CNP* of RM24.5m (+112% QoQ, -40% YoY) brings 9MFY20 CNP to RM62.2m – below our and consensu\ estimates at 59% and 56%, respectively. The disappointment stemmed from lower-than-expected construction revenue billings due to lockdown compliance. 3QFY20 construction revenue is at c.90% of the pre-Covid- 9 run-rate. The 1.5 sen dividend declared came within our 3.0 sen

target.

*We have stripped out: (i) gains from disposal of quoted shares worth RM8.8m, (ii) net fair value loss of RM4.7m, and (ii) reversal of ECL worth RM1.9m to

derive at our core profit.

Highlights. QoQ, 3QFY20 CNP of RM24.5m was up 112% led by a 73% surge in revenue as the group rebounded from a MCO-laden 2QFY20. Unsurprisingly, 9MFY20 CNP was down 43% YoY due to the unprecedented MCO/CMCO lockdowns.

Construction order-book remains strong at RM3.6b (3.5x cover).  YTD, KERJAYA has secured contracts valued at RM1.4b, in line to hit our management replenishment target of RM1.5b backed by a tender-book worth RM2.0b.

BBCC site impacted by Covid-19 with a 2-week stop work order being issued after 100+ workers tested positive for Covid-19. Management anticipates cost of c.RM800-900k to quarantine 500+ workers in hotels coupled with sanitisation costs. Works is expected to resume on 2nd December 2020. While this unfortunate incident would chip into 4QFY20 earnings, the impact is unlikely to be significant as this is only 1 out of their 27 outstanding jobs.

Payment collection remains uninterrupted with no large spikes in receivables. Management also provided assurance that there are little hiccups with payment collections. Net cash in 3QFY20 remains healthy at RM182m (vs. RM185m in 2QFY20).

Lower FY20E/FY21E earnings by 14%/16% to factor in the slower construction revenue billings for the remainder of FY20 and 1HFY21.  With intermittent shut downs at sites due to compulsory Covid-19 testing and sanitisation from time to time, we only assume that full construction works and optimal construction billings can only resume in 2HFY21.

Maintain OUTPERFORM despite lower SoP-derived TP of RM1.25  (from RM1.50). This is anchored by its construction segment of which we have attached a PE multiple of 12x (at 3-year mean) on FY21E earnings. We like KERJAYA for: (i) its strong replenishment prowess,(ii) stable net cash position despite growing top-line, and (iii) trading at an appealing ex-cash FY21E PER of 7.5x.

Source: Kenanga Research - 27 Nov 2020