• Keep BUY, with new MYR2.15 TP from MYR1.93, 24% upside. Kerjaya Prospek’s FY23 core profit of MYR130.1m (+13% YoY) met our and Street estimates – making up 98% and 97% of full-year projections. We forecast a 3-year earnings CAGR of 12% backed by its steady job replenishment trend, coupled with stronger property development contribution. FY24F dividend yield of c.5% is also attractive (higher compared to most peers).

• Results review. The construction segment recorded a PAT of MYR145.7m (+22% YoY) in FY23, backed by higher progress billings from ongoing jobs. Nonetheless, PAT margin for the construction segment slightly dipped to 10.2% in FY23 from 10.6% in FY22 amidst some provision for delays. Meanwhile, the property development segment saw a PAT of MYR4.1m (FY22 loss after tax: MYR0.5m) in FY23, backed by property sales for The Vue @ Monterez project (GDV: c.MYR300m) with a c.60% take-up rate (signed sales and purchase agreement) as of end 4Q23. The property arm is expected to contribute more in FY24 following the launch of Papyrus @ North Kiara project (GDV: c.MYR500m) in 1H24.

• KPG’s outstanding orderbook as at end 4Q23 stood at c.MYR4.2bn (3x cover ratio). Thus far, KPG has secured MYR377.8m worth of new jobs YTD (25% of our FY24 job replenishment target of MYR1.5bn). The group’s ongoing tenderbook of MYR1.5-2bn still mainly consists of high rise buildings but management indicated that there are around three jobs (particularly industrial) under its partnership with Samsung C&T. Seri Tanjung Pinang Phase 2 (STP2) development in Penang should facilitate KPG’s orderbook replenishment with at least MYR1bn worth of jobs secured under the said development since 2016.

• Another pocket of opportunity may stem from Eastern & Oriental’s (EAST MK, BUY, MYR1.08) Elmina West development (estimated baseline GDV: MYR1.5bn). Recall that KPG has secured a MYR25m job in 3Q23 to undertake earthworks for the said development in Elmina West. We view this development to be important for EAST to mitigate its single-location risk. Taking these factors into account, we view the stock’s 13.5x FY24F P/E to be undemanding vs the KL Construction Index’s P/E of 17x during the 2017 construction upcycle.

• No changes to our earnings estimates as results met expectations. We are also introducing our FY26F earnings with a job replenishment target of MYR1.3bn. All in, we revise our SOP-derived TP to MYR2.15 from MYR1.93 after: i) Updating the net cash figures into our SOP valuation, and ii) rolling forward our valuation base year to FY25F (from FY24F). Our TP also bakes in a 2% ESG premium based on an ESG score of 3.1.

• A major catalyst for KPG includes further involvement in Penang-related projects beyond STP2 in light of the anticipated Penang Light Rail Transit.

• Downside risks: Property market slowdown and prolonged cost pressures.

Source: RHB Research - 1 Mar 2024