Results Review

• Excluding an one-off expense amounting to RM3.3mn, KERJAYA’s 1QFY24 core earnings of RM36.9mn met ours and the street’s expectations, came in at 23.7% and 21.8% of ours and the consensus’ fullyear estimates, respectively.

• A first interim dividend of 2.5sen/share was declared (1QFY23: 2.0sen/share).

• YoY, 1QFY24 revenue and core net profit registered growth of 13.4% and 30.4%, respectively. The strong improvement was driven by higher revenue recognition from existing projects and better gross margins amidst stabilising input costs.

• QoQ, 1QFY24 revenue contracted by 31.1% due to slower progress in construction work activities. Despite this, core earnings improved by 11.5%, primarily driven by a lower effective tax rate.

Briefing Highlights:

• KERJAYA anticipates its net margin to rebound to low double digits after experiencing a decline attributed to higher raw material costs in the preceding financial year.

• The group maintains its construction order book replenishment target of RM1.6bn for FY24. As of now, the total YTD contract wins for FY24 stand at RM978.7mn.

• With the addition of job wins in 2024, the current outstanding order book has expanded to RM5.1bn. Approximately 53% of this comprises related party transaction (RPT) projects, particularly with Eastern & Oriental Bhd (E&O) and Kerjaya Prospek Property Bhd. Looking ahead, KERJAYA aims to increase the RPT ratio to 70% of its job portfolio while also actively pursuing external projects. This strategy is supported by E&O’s new project launch target of approximately RM2.0bn in GDV on Andaman Island. Notably, KERJAYA is targeting new contracts from E&O for buildings and infrastructure projects totaling RM2.6bn for CY24 and CY25.

• In the industrial properties sector, KERJAYA continues to leverage its joint venture with Samsung to secure more industrial projects, specifically data centres and semiconductor factories. We understand that KERJAYA has been actively tendering for these projects, with results expected by the end of 1QFY25.

• Additionally, the project value of the Texas Instruments (TI) project secured in late 2022 has reached approximately RM2.2bn, inclusive of variance orders. However, the tender for TI's Klang Valley expansion has been finalised and was awarded to a foreign company.

Impact

• We revise our FY24/25/26F earnings forecasts upward by 6.4%/15.1%/26.6%, respectively, to reflect the changes in revenue recognition timing based on the actual construction durations of recently secured projects.

Outlook

• With a total outstanding construction orderbook of RM5.1bn which is equivalent to 3.4x FY23 revenue, we anticipate a robust earnings visibility for the next three years. Meanwhile, the group has an active tender book range of RM1.5bn to RM2.0bn.

Valuation

• Following the earnings revision, we adjust our target price higher to RM2.21 (from RM1.95), premised on PER 15x CY25 earnings. We continue to like KERJAYA for its:- (i) solid earnings visibility, (ii) consistent and robust replenishment of its order book, and (iii) the potential growth in industrial property construction leveraging the partnership with Samsung. Maintain Buy on the stock.

Source: TA Research - 30 May 2024