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This article first appeared in The Edge Malaysia Weekly on August 28, 2017 - September 3, 2017

Kerjaya Prospek Group Bhd’s shares have been on a tear, especially in the past 18 months, when investors saw the change in its earnings trajectory. The company booked record-high profits and secured sizeable contracts from several reputable developers despite the soft property market.

Shares of the company — which aims to be a leader in providing value-added construction services and property-related products — quadrupled in just over three years from below RM1 at end-March 2014 to RM3.26 on June 30 this year, translating into an annualised total return of 55.8%. That made it the clear winner of The Edge BRC Highest Returns to Shareholders award for the construction sector.

Stoking investors’ interest is expectations of more building contracts being awarded to Kerjaya by Eastern & Oriental Bhd (E&O) going forward, given their 12-year working relationship and consistent contract flow. It is worth noting that E&O recently tied up with Kumpulan Wang Persaraan (Diperbadankan) (KWAP) for its Seri Tanjung Pinang 2 project, where reclamation and development works are expected to accelerate with the resolution of the financing requirements. Kerjaya’s other clients include SP Setia Bhd and Eco World Development Group Bhd.

From RM11.5 million in FY2013, Kerjaya’s net profit grew to RM15.4 million in FY2014 and RM16.1 million in 2015 before rocketing to RM99.6 million in FY2016. Its construction division contributed close to 95% of revenue and profit following the acquisitions of Kerjaya Prospek (M) Sdn Bhd and Permatang Bakti Sdn Bhd, which came with an outstanding construction book of RM2.6 billion as at January 2016.

At the time of writing, there seems to be limited near-term upside to be had with Kerjaya shares closing as high as RM3.72 on Aug 22, ahead of all three target prices on the stock that ranged from Kenanga Research’s RM3.30 to UOB Kay Hian Research’s RM3.69.

That day, Kerjaya announced its intention to pay at least 25% of its net profit every year “to retain existing shareholders as well as to attract” new ones.

“While it is positive, we are neutral as the company has been declaring dividends of more than 25% of its profit after tax and minority interest,” UOB Kay Hian Research says in an Aug 23 note, in which it retains a “hold” call on the stock and tells clients that a good entry price is RM3.20.

Kerjaya’s 1HFY2017 net profits of RM61.8 million were within expectations at about half of consensus estimates. The RM868 million new construction jobs secured year to date exceeded the group’s RM800 target, which RHB Research deemed conservative as Kerjaya expanded its order book by RM1.5 billion last year — more than double its RM600 million target.

When initiating coverage with a “buy” and RM3.62 target price in a June 8 note, RHB Research expect Kerjaya’s order book replenishment to reach RM1 billion to RM1.2 billion over the next two years. UOB expects RM1 billion.

As at June 2017, the company’s construction order book stood at RM2.5 billion or 3.3 times construction revenue for 2016. More recent job wins would push the outstanding order book to RM2.9 billion, UOB says.

Kenanga reckons its order books provide 2½ years of visibility and would not be surprised to see additional project wins, stemming from major shareholder and executive chairman Datuk Tee Eng Ho’s private property arm that is mulling the launch of a mixed-use development project in Jalan Klang Lama with a gross development value (GDV) of RM1 billion and RM300 million to RM400 million worth of contracts.

Both RHB and Kenanga mentioned the like-lihood of a 1-for-1 bonus issue, with the company having a high share premium of RM333 million versus its RM258 million share capital, and the share premium account no longer being applicable from FY2018. It remains to be seen if that would spur another round of gains.

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