KERJAYA has secured a RM567.7m Seri Tanjung Pinang contract from sister company E&O (Not Rated). This brings its YTD job wins to RM978.7m and its outstanding order book to RM5.2b. We maintain our forecasts and TP of RM1.90 but cut the stock to MARKET PERFORM from OUTPERFORM after the strong run-up in its share price.

KERJAYA has been awarded a RM567.7m contract by sister company E&O for reclamation and dredging works for Seri Tanjung Pinang (Phase 2B & 2C) development, Penang. The contract period is 40 months commencing Jul 2024.

We are positive on the latest contract win, its sixth in FY24, boosting its YTD new job wins to RM978.7m (against our full-year FY24 assumption of RM1.5b) and outstanding order book to RM5.2b.

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 which is 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). However, we downgrade the stock to MARKET PERFORM from OUTPERFORM as it is fairly valued after the strong run-up in its share price. Nonetheless, the stock is supported by an 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 - 28 May 2024