Kerjaya Prospek Group Bhd
(Aug 28, RM1.41)
Maintain underperform with an unchanged target price (TP) of RM1.20: Kerjaya Prospek Group Bhd’s core net profit (CNP) of RM71 million for the first half of financial year 2019 (1HFY19) came in within expectations, making up 46% and 45% of our and consensus’ full-year estimates. As expected, there was no dividend declared. There are no changes to our FY19 and FY20 earnings estimates. We maintain our “underperform” rating with an unchanged sum-of-parts (SoP)-driven TP of RM1.20.

For 1HFY19, its CNP improved by 5% year-on-year, driven by improvements such as a lower financing cost (-74%) and better margins where the pre-tax margin improved to 17.8% (+1.2 percentage points) which we believe arose from better billings for higher-margin jobs. Quarter-on-quarter, its CNP for the second quarter of FY19 grew 2% amid a marginal drop in revenue (-2%), thanks to an improvement in margins similar to the aforementioned.

To date, Kerjaya Prospek has secured RM1.1 billion worth of jobs, and the management is confident of exceeding the replenishment target of RM1.2 billion. Its outstanding order book remains fairly healthy at RM3.3 billion, providing at least three years of visibility. We believe Kerjaya Prospek has a good chance of winning more contracts in Penang, mainly from Eastern & Oriental Bhd’s Seri Tanjung Pinang Phase 2 project.

We maintain our “underperform” rating with an unchanged SoP-derived TP of RM1.20 pegged at an unchanged valuation of 10 times price-earnings ratio (PER) for FY20 due to the recent rise in share price. The valuation ascribed to Kerjaya Prospek is at the higher end of our small- to mid-cap PER range of six times to 11 times due to its strong track record of “zero delay” in project delivery, coupled with superior margins compared with those of other players.

Our SoP-derived TP implies a FY20 PER of 9.5 times, lower than our ascribed 10 times valuation for its construction division as this is diluted by its property division, valued at a lower multiple of five times. — Kenanga Research, Aug 28