KERJAYA has secured a RM111.8m building job from KPPROP (Not Rated) for a 52-storey service apartment in Setapak, Kuala Lumpur. This is its fourth contract win in FY24, boosting its YTD job wins to RM377.9m and outstanding order book to RM4.7b. We maintain our forecasts, TP of RM1.90 and OUTPERFORM rating.

KERJAYA has been awarded a RM111.8m contract by relatedcompany KPPROP for the construction of a 52-storey service apartment in Jalan Kampung Bandar Dalam, Setapak, Kuala Lumpur. The contract shall commence in Jan 2024 with a construction period of 40 months.

We are positive on the latest contract win, its fourth contract win in FY24, boosting its YTD new job wins to RM377.9m against our full-year FY24 assumption of RM1.5b. The latest jobs have also boosted its outstanding order book to RM4.7b.

Meanwhile, its tender book stands at c.RM2.0b comprising: (i) building/reclamation jobs from its sister companies i.e. E&O (Not Rated) and KPPROP, (ii) MNC industrial warehouse/factories (via its JV with Samsung C&T), and (iii) third-party building jobs in the Klang Valley.

Forecasts. Maintained.

Valuations. We keep our SoP-TP of RM1.90 (see next page) valuing its construction business at 14x forward PER, at a discount to the 18x we ascribed to large contractors (i.e. GAMUDA, IJM, and SUNCON) given KERJAYA’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.

Investment case. We continue to like KERJAYA for: (i) its innovative and hence high-margin formwork construction method, (ii) its lean and hands-on management team with a strong execution track record, (iii) its strong earnings visibility underpinned by a sizeable outstanding order book and recurring orders from related companies (such as E&O, KPPROP). Maintain OUTPERFORM.

Risks to our call include: (i) further deterioration in the prospects for building jobs, (ii) rising input costs, and (iii) liquidated ascertained damages (LAD) from cost overrun and delays.

Source: Kenanga Research - 17 Jan 2024