KERJAYA’s 1QFY24 results met expectations. Its 1QFY24 core profit grew 14% YoY on higher construction billings and property sales. We like KERJAYA for making a name in high-rise building jobs locally. We keep our forecasts, TP of RM1.90 and MARKET PERFORM call.

KERJAYA’s 1QFY24 core profit of RM33.6m made up only 19% and 20% of our full-year forecast and the full-year consensus estimate, respectively. However, we consider the results within expectations as we expect stronger earnings in coming quarters. It declared a first interim NDPS of 2.5 sen in 1QFY24, on track to meet our full-year forecast of 10 sen.

YoY. Its 1QFY24 revenue rose 13% on higher billings from construction (+11%) while property contributed RM7.4m (vs. nil in 1QFY23) from its new project The Vue @ Monterez). Correspondingly, its core profit grew by 14%.

QoQ. Its 1QFY24 revenue declined 31% due to fewer working days during the quarter on the back of the Chinese New Year break. Its core profit only contracted 6%, we believe, in the absence of lumpy costs and a lower effective tax rate.

The key takeaways from its results briefing are as follows:

1. YTD, it has secured six new jobs worth a total of RM978.7m, on track to meet its FY24 job win target of RM1.5b (which is also our assumption). All the six new jobs are related-party transactions (RPT) including three from E&O (Not Rated) and one from KPPROP (Not Rated). Currently, its outstanding order book stands at RM4.7b with 26 on-going projects.

2. Its current tender book of RM1.5b to RM2.0b comprises mostly high-margin jobs such as building jobs for data centre and semiconductor foundry. For data centre jobs, it intends to start with the smaller-scale ones of which the learning curve is less steep. It has been pre-qualified to bid for Penang airport expansion project worth RM800m to RM1b.

3. It sets a property sales target of RM100m in FY24, coming from Papyrus @ North Kiara (GDV of RM500m, soft launch in Mar 2024), apart from The Vue @ Monterez (GDV of RM300m, a take-up rate of c.70% as at Mar 20204). It guided for a gross margin of 20%

Forecasts. Maintained.

Valuations. We also keep our SoP-TP of RM1.90 (see Page 3) 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 5).

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, its current share price valuations have reflected its fundamentals. Maintain MARKET PERFORM.

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 - 30 May 2024