KERJAYA has secured a RM33.2m contract from sister company E&O (Not Rated) for piling and earthworks for a service apartment in Pulau Andaman, Penang, boosting its YTD job wins to RM411m and its outstanding order book to RM4.7b. We maintain our forecasts, TP of RM1.90 and OUTPERFORM rating.

KERJAYA has been awarded a RM33.2m contract by sister company E&O for piling and earthworks for a proposed service apartment in Bandar Tanjung Pinang, Pulau Andaman, Penang. The contract shall commence in Jun 2024 with a construction period of 12 months.

We are positive on the latest contract win, its fifth in FY24, boosting its YTD new job wins to RM411m (against our full-year FY24 assumption of RM1.5b) and outstanding order book to RM4.7b.

Meanwhile, its tender book stands at RM2.0b-RM3.0b comprising largely building jobs (with half of them coming from related parties). It is also eyeing two to three industrial projects worth a total of more than RM1b.

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 (see Page 4).

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. The stock also offers attractive dividend yields of >5%.

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 - 2 Apr 2024