KUALA LUMPUR (Jan 4): Shares in Kerjaya Prospek Group Bhd rose to a fresh record high of RM1.63 in early trade on Thursday as analysts viewed the group will continue to benefit from strong growth in Andaman Island.
TA Securities Holdings Bhd has raised its target price (TP) for Kerjaya Prospek by 8% to RM1.64 (from RM1.52), based on a higher price-to-earnings (P/E) multiple of 13 times calendar year 2024 earnings (from 12 times previously).
Kerjaya secured a RM170.9 million contract from Persada Mentari Sdn Bhd — an indirect subsidiary of Eastern & Oriental Bhd (E&O) — to undertake a proposed Andaman Island development project, also known as Seri Tanjung Pinang Phase 2 (STP2) in Penang.
The job scope covers the construction of main building works for, amongst others, a 45-storey structure comprising a 38-storey serviced apartment block of 380 units — to be completed within 35 months from Jan 18, 2024. It is deemed a recurrent related party transaction as the group’s non-independent non-executive chairman, Datuk Tee Eng Ho, is E&O's executive chairman and indirect major shareholder of E&O.
“This is the first construction job secured by Kerjaya in 2024, bringing the total outstanding order book to RM4.5 billion currently, equivalent to four times FY2022 (ended Dec 31) revenue. Assuming a gross margin of 14%, the project is estimated to generate RM17 million of net earnings throughout the construction period. Kerjaya is not unfamiliar with Andaman Island as the group previously won a few jobs on the island,” said TA Securities.
“[We] maintain our FY2023 to FY2025 earnings forecasts as the job win is within our FY2024 order book replenishment assumption of RM1.6 billion,” said the research house which maintained its "hold" call for the stock.
RHB Investment Bank Bhd has also maintained its earnings estimates for Kerjaya as the recent job growth is within the research house’s FY2024 job replenishment assumption.
But, the research house adjusted its environmental, social and governance (ESG) score from 3.0 to 3.1 to reflect Kerjaya’s involvement in Andaman Island Phase 1, which has received the GreenRE Platinum Provisional Certification under the township category.
“Such certifications would entail Kerjaya to continue ensuring sustainable construction site management and practices, especially under STP2. As a result, we arrive at a new SOP-derived TP of RM1.75 (from RM1.71). Taking into consideration the aforementioned prospects, we view its valuation to be undemanding as the stock is trading at -0.5 standard deviations from the Bursa Malaysia Construction Index’s five-year mean P/E,” RHB said.
As Andaman Phase 2 has not yet commenced any significant land reclamation works, RHB believes that the group has a fair chance to carry out reclamation works for this phase of STP2 together with some small link bridges within the said development.
“In the long run, STP2 could provide continuity of job flows for Kerjaya over the next 5-7 years, worth circa RM2 billion. Separately, we view Kerjaya’s partnership with Samsung C&T as enabling it to leverage on industrial building jobs amid the country’s foreign direct investment growth," it added.
Kerjaya was among the top gainers on Thursday’s morning trade. At the time of writing, shares of the group were four sen or 2.53% higher at RM1.62, giving it a market capitalisation of RM2.05 billion.