Tee: We expect to achieve double-digit growth for both revenue and net profit this year, driven by our ongoing projects. Photo by Mohd Izwan Mohd Nazam/The Edge
CONSTRUCTION company Kerjaya Prospek Group Bhd is showing no signs of being affected by the slowdown in the property market, as it continues to surpass its internal targets.
Executive chairman Datuk Tee Eng Ho sees the cautious mood that has gripped the local housing market in the past year continuing this year, attributing it to the stricter lending rules that have made it difficult for purchasers to obtain loans. Yet, the group is unfazed as it prepares to grab a larger share of a declining market from its rivals.
“I don’t follow market trends. I still believe we can do better than the market. While the overall pie is shrinking, we aim to take a bigger piece of it,” Tee tells The Edge in an interview.
He believes Kerjaya has the edge over its rivals because of its quality workmanship and timely delivery.
“So far, our Conquas (Construction Quality Assessment System) score for the [construction of the] Setia Sky 88 high-rise project [in Johor Baru] has been more than 80 points,” he says. A score of 80 means that 80% of the items checked for workmanship quality met the standards of Conquas, which is a Singapore-based certification that measures the quality of building projects.
Meanwhile, the group has set an internal order book replenishment target of RM1 billion for this year despite the slowdown in the housing market.
It is worth noting that Kerjaya surpassed its order book targets for the past two years. The group achieved an order book of RM1.4 billion last year, comfortably beating its internal target of RM800 million. It also replenished its order book by RM1.5 billion in 2016, exceeding its internal target of RM600 million.
“When we were working on our internal order book target for 2016, we were expecting a slow year and it was based on contracts from existing clients such as S P Setia Bhd and Eco World Development Group Bhd. However, we surpassed the estimate as we managed to get a few new clients such as Bon Estates Sdn Bhd, Aspen Group Holdings Ltd and BU Development Sdn Bhd on board,” explains Tee.
He says the group’s outstanding order book of RM3.2 billion as at Nov 30 last year is sufficient to last it until 2020, but it is by no means resting on its laurels. Currently, the group’s tender book stands at RM1.3 billion, with an estimated success rate of 20%.
Tee points out that the tender book consists of only local projects, adding that the group has no intention to expand overseas. “I don’t want the foreign risk,” he says, citing construction firms that had ventured abroad and failed.
In the first nine months of last year, Kerjaya’s net profit amounted to RM96.16 million, nearly equal to its net profit of RM99.62 million for the whole of 2016, putting it on track for a second straight year of record earnings. It will release its fourth-quarter and full-year 2017 financial results next month.
Already, Tee expects Kerjaya to see its third consecutive year of record earnings for the financial year ending Dec 31, 2018 (FY2018).
“We expect to achieve double-digit growth for both revenue and net profit this year, driven by our ongoing projects. We see contribution from new jobs only starting in 2019.”
Kerjaya has earmarked a capital expenditure of RM40 million in FY2018 for investments tied to the industrialised building system (IBS).
Tee says going forward, the group is deliberating whether to build a plant to manufacture prefabricated building materials using the IBS technology, as it seeks to further reduce its manpower by 10% to 20%. However, he declines to elaborate, except to say that it will involve a “small investment, but the end result will help our operational performance significantly”.
“Currently, the use of IBS has helped to reduce our reliance on labour by 30% to 40%. It also improves the quality of construction and helps to achieve faster construction,” he adds.
While the cost for IBS building materials is generally higher than traditional materials by 5% to 10% for residential projects, Tee reveals that Kerjaya’s investment cost in IBS has been fully depreciated because of the group’s early investment in the technology in 2010.
“As a result, we are able to offer competitive prices and enjoy better margins,” he says.
Apart from its construction business, Kerjaya has two other divisions — property development and manufacturing. The property development division is mainly involved in developing the group’s two parcels in Gohtong Jaya, Genting Highlands, and Shah Alam, Selangor.
Tee says since its launch in January 2016, the Vista Residences development in Gohtong Jaya has seen a take-up of about 70%. The gross development value (GDV) of the 1.4-acre project is RM300 million.
Kerjaya plans to launch its next project on its 8.7-acre parcel in Monterez Golf & Country Club in Shah Alam in the first half of next year. It was deferred from 2017 due to the slowdown in the property market.
“I have changed the plans for the project to allow for more units with smaller built-ups, from 347 to 512 [units to cater for the changing market requirements]. The GDV has also been increased from RM200 million to close to RM300 million,” Tee says, adding that the group is in no hurry to launch the project as financing for the parcel has been completed.
Kerjaya has no plans to acquire more land for development as the construction business will continue to be the group’s largest business segment, he reveals. “The property development and manufacturing divisions will at most contribute about 10% to 15% to the group’s revenue.”
Thus, Tee is not planning to inject his private property development outfit under Kerjaya Prospek Property Sdn Bhd into the listed company.
Kerjaya also has no plans to expand its manufacturing division — it wants to maintain the status quo.
“The production of our kitchen solutions is project-driven and serves as a complementary service to the construction business. We will not aggressively secure new projects for this business unless we believe they will contribute positively to the group. We are selective about our clients. We only go for clients that share the same values as us — such as Eastern & Oriental Bhd — as our kitchen solutions are a premium product,” says Tee, likening it to the Louis Vuitton luxury brand.
With total borrowings of RM52.17 million and cash and cash equivalents of RM215.17 million, Kerjaya had a net cash of RM163 million and gearing ratio of 1.87 times as at Sept 30 last year.
Tee says the group has been in talks to acquire companies in related businesses, but nothing has been finalised so far.
The ability to sustain profit margins despite a slowdown in the property sector has supported the shares of Kerjaya. Its profit margin, at 11% to 12%, has also been consistently superior to its peers’ 3% to 5%. Shares in Kerjaya closed at RM4.07 last Thursday, giving it a market capitalisation of RM2.3 billion. The stock has risen 75% over the past year.