Brighter prospects ahead for Kerjaya Prospek

Kerjaya Prospek Group Bhd (June 8, RM3.24)

Initiate buy with a target price of RM3.62:  We believe there should be more building contracts to be awarded to Kerjaya Prospek Group Bhd by Eastern & Oriental Bhd (E&O) going forward, given the 12-year working relationship between the companies, and consistent contract flow from the latter over the past years.

Moreover, as E&O had recently tied up with Kumpulan Wang Persaraan (Diperbadankan) (KWAP) for its Seri Tanjung Pinang 2 project, the reclamation and development works should accelerate as the financing requirement is now resolved.

Currently, Kerjaya has RM427 million worth of outstanding jobs from E&O, representing 17% of its total outstanding order book of RM2.5 billion. We are upbeat on its plan to penetrate the landed development segment. The company is known for building high-quality high-rise developments, largely due to the building system that it adopts for system construction.

Given that Kerjaya has successfully completed its first landed building works, the Avira project by E&O, we expect it to bag more jobs in the landed home segment.

Its existing clients such as S P Setia Bhd and Eco World Development Group Bhd are among the renowned township developers, and these companies have been launching many landed developments.

Its highly experienced design team as well as its own machinery and equipment are also a cost advantage.

We expect Kerjaya to have an annual order book replenishment of RM1 billion to RM1.2 billion over the next two years, even though management has targeted to achieve only RM800 million.

We believe that our estimate is not unreasonable given that the company topped up its order book to RM1.5 billion last year versus its conservative target of only RM600 million.

We estimate a net earnings growth of more than 15% per annum for the financial year ending Dec 31, 2017 (FY17) to FY18, backed by its current outstanding order book of RM2.5 billion. As Kerjaya is one of the few contractors that are in a net cash position, this should support its 30% dividend payout.

The recent rerating of the construction sector supports further valuation discovery of Kerjaya. Apart from the upcoming contract flows, a likely bonus issue may also provide a potential upside to its share price. — RHB Research, June 8

This article first appeared in The Edge Financial Daily, on June 9, 2017.

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