Kerjaya Prospek's latest job award within expected 2024 contract replenishments, say analysts

• According to Kenanga Research, the latest award has lifted the group’s new job wins this year to RM377.9 million, against its full-year FY2024 assumption of RM1.5 billion. The latest jobs have also boosted Kerjaya Prospek’s outstanding order book to RM4.7 billion, it said.

KUALA LUMPUR (Jan 17): The latest RM111.8 million property construction job win by Kerjaya Prospek Group Bhd from sister company Kerjaya Prospek Property Bhd (KPPROP) is within its anticipated contract replenishment of RM1.5 billion to RM1.6 billion this year, analysts said.

The analysts have subsequently kept earnings forecasts unchanged, although with different calls on its share price, due to different valuation multiples ascribed, and on the back of a recent rally in Kerjaya Prospek's shares to its highest in nearly five years.

The counter traded unchanged at RM1.70 following the Tuesday announcement of the contract win. Since mid-2023, its shares have risen by around 60%.

The related-party transaction, Kerjaya Prospek’s fourth contract since the start of the year, is for the construction of a 52-storey serviced apartment in Setapak, Kuala Lumpur.

According to Kenanga Research, the latest award has lifted the group’s new job wins this year to RM377.9 million, against its full-year FY2024 assumption of RM1.5 billion.

The latest jobs have also boosted Kerjaya Prospek’s outstanding order book to RM4.7 billion, it said.

“Meanwhile, its tender book stands at approximately RM2 billion, comprising building and reclamation jobs from its sister companies (Eastern & Oriental Bhd and KPPROP), MNC industrial warehouses and factories (via its JV with Samsung C&T), and third-party building jobs in the Klang Valley,” Kenanga Research said.

As the contract win is within the full-year assumption, Kenanga Research kept its sum-of-parts-based target price unchanged at RM1.90 with “outperform” call, valuing its construction business at 14 times the forward price-earning ratio (PER).

This valuation is at a discount compared to the 18 times attributed to major contractors such as 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, it said.

It sighted Kerjaya Prospek’s high margin formwork construction method, execution track record, and sizeable order book and recurring orders from related companies. However, risks include wider industry prospects, rising input costs, and risks of cost overruns or delays.

Meanwhile, TA Research reiterated its “sell” call on the counter, with an unchanged TP of RM1.64 based on 13 times the FY2024 earnings per share (EPS) — below its current trading price of RM1.70.

However, TA Research noted that it anticipates a higher order book replenishment of RM1.6 billion for Kerjaya Prospek in FY2024. The RM4.7 billion outstanding order book, it said, is equivalent to 4.2 times group revenue in FY2022.

“Assuming a gross margin of 14%, the project is anticipated to contribute around RM10.8 million in net earnings throughout the construction period,” it said.

Separately, RHB Research lifted its target price for Kerjaya Prospek to RM1.93, from RM1.75, as it raised the price-to-earnings multiple of its construction arm to 14 times, from 12.5 times, to reflect valuation during the mid-2017 construction industry upcycle.

The research house, which maintained its "buy" call, pointed to several potential opportunities in Penang and Shah Alam.

"Putting aside the Seri Tanjung Pinang Phase 2 (STP2) development in Penang which may guarantee the flow of jobs to Kerjaya Prospek, we view that there are other opportunities for the group from various angles.

“With it already securing around RM1.4 billion worth of jobs in Batu Kawan under Aspen Group Holdings (Aspen) — Kerjaya Prospek could stand a chance in bidding for industrial building jobs by Aspen," it said.

“The reason being Aspen, via Aspen Vision Properties, has a stake in Global Vision Logistics — the developer of the 71-acre Shah Alam International Logistics Hub (SAILH) and by virtue of past job wins by Kerjaya Prospek from Aspen, a job under SAILH (particularly Phase 2) could not discounted, especially with the collaboration between Kerjaya Prospek and Samsung C&T,” it added.

Other pockets of opportunities may stem from E&O’s Elmina West development (estimated baseline gross development value: MYR1.5 billion). Recall that Kerjaya Prospek has secured a RM25 million job in 3Q2023 to undertake earthworks for the said development in Elmina West, it said.

“In our view, KPG may be able to secure more jobs in Elmina West as the development is important for E&O to mitigate single-location risk,” it added.

At the time of writing, Kerjaya Prospek was traded unchanged at RM1.70, translating into a market capitalisation of RM2.15 billion.

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