Stable demand seen for Kerjaya Prospek’s property building jobs

TheEdge Fri, Oct 04, 2019 11:23am - 4 years View Original


Kerjaya Prospek Group Bhd
(Oct 3, RM1.29)
Maintain buy with a target price (TP) of RM1.64:
Kerjaya Prospek Group Bhd has secured a contract from Bintang Holdings Sdn Bhd, a member of the Low Yat Group, worth RM23 million to undertake construction of a basement and earthworks for a proposed 23-storey hotel in George Town, Penang. The project is expected to be completed within 15 months.

With the latest contract, Kerjaya Prospek has surpassed its internal replenishment target for financial year 2019 (FY19). Year-to-date, it has secured new job wins worth RM1.3 billion versus its internal target of RM1.2 billion. We maintain our job replenishment target of RM1.5 billion this year, largely driven by building works in the Klang Valley. Kerjaya Prospek is eyeing to secure at least one work contract, which includes the construction of a mixed development project worth about RM800 million, a bridge worth RM200 million, and high-rise residential blocks in Kuala Lumpur for RM300 million. Separately, we understand the property building jobs secured by Kerjaya Prospek are expected to see stable demand due to their strategic locations and close proximity to amenities. Meanwhile, we expect several high-rise residential projects to be rolled out in the near term as developers continue to monetise their strategic land banks. Presently, Kerjaya Prospek’s tender book stands at RM1.5 billion, comprising mainly high-rise residential buildings.

The latest project is expected to contribute RM2.3 million profit for FY19 and FY20. Assuming a 10% net margin, we estimate the project would contribute RM700,000 and RM1.6 million in net profit for FY19 and FY20 respectively.

The new job lifts the group’s outstanding order book to about RM3.4 billion, implying an order book cover of 3.1 times its FY18 construction revenue. Key jobs include contracts from HCK Capital Group Bhd (RM435 million), Kerjaya Prospek Property Sdn Bhd (RM439 million) and Vertu Resort, Penang (RM300 million).

There is no change to our FY19 to FY21 earnings forecasts as we assume a RM1.5 billion annual order book replenishment in FY19, and RM1.3 billion annually in FY20 to FY21. Our TP of RM1.64 is based on 14 times FY20 forecast price-earnings (PE). We opine the higher-than-peers PE is justified due to Kerjaya Prospek’s zero reliance on government-related projects and its ability to clinch building jobs (driven by the private sector) despite uncertainties in the construction space. We like Kerjaya Prospek for: i) its superior margins; ii) its high order book cover; iii) net cash of RM191 million as at March 2019; and iv) its ability to clinch new contracts, given its strong track record. — UOB Kay Hian, Oct 3

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