This article first appeared in The Edge Malaysia Weekly on October 10, 2022 - October 16, 2022
CONSTRUCTION outfit Kerjaya Prospek Group Bhd and South Korea-based Samsung C&T Corp are actively bidding for large-scale infrastructure and industrial construction projects in Malaysia after entering into a partnership in June and are confident of securing their first joint project worth at least RM800 million this year, according to people with knowledge of the matter.
They say securing a project of that size could pave the way for Kerjaya to venture into larger civil and infrastructure projects, thanks to its partnership with Samsung C&T. The partners have announced that they will jointly explore large-scale construction contracts exceeding RM300 million. The pact is effective for five years, with automatic renewal of one-year periods.
In an Aug 23 note to clients, TA Securities analyst Chan Mun Chun said Kerjaya’s management had revealed that the two parties were exploring plans to tender for more sophisticated projects such as the construction of electrical and electronics plants in the country.
In Malaysia, Samsung C&T has built several high-rise projects, namely Tower 2 and Skybridge of the Petronas Twin Towers, Menara Maxis, Star Residences and KLCC Lot 91/Sapura headquarters. Samsung C&T also has projects that are currently under construction: Merdeka PNB 118 near Stadium Merdeka and Lot LL1M KLCC.
When announcing its collaboration with Samsung C&T in June, Kerjaya said it would enable the group to leverage Samsung C&T’s international expertise and strengths, as its capabilities in value engineering, advanced construction technologies and a wide range of expertise would complement the group in the construction of more challenging and complex projects.
The collaboration also saw Samsung C&T subscribing for Kerjaya’s private placement of 25.2 million new shares, or a 2.04% stake, for RM40.38 million or RM1.60 per share, via its wholly-owned subsidiary Vista Contracting & Investment Global Pte Ltd. Kerjaya said the proceeds raised would be used as working capital for ongoing projects.
In a June 10 note, RHB Research analyst Adam Mohamed Rahim said he believed the framework agreement between Kerjaya and Samsung C&T was a positive step for the former to stretch its wings to more sophisticated projects compared with its current projects, which are mainly related to property development.
It is worth noting that Kerjaya’s construction division is currently largely involved in the building of high-rise residential and commercial buildings for reputable developers in Malaysia, including Eastern & Oriental Bhd (E&O), S P Setia Bhd and Eco World Development Group Bhd. The group has also undertaken works for infrastructure projects since winning its maiden infrastructure project for reclamation works at the second phase of the Seri Tanjung Pinang (STP2) project in Penang in 2016.
Kerjaya and E&O have a common shareholder in Amazing Parade Sdn Bhd — the private investment vehicle of Kerjaya co-founders Datuk Tee Eng Ho and his brother Tee Eng Seng. Amazing Parade has a 71.36% stake in Kerjaya and 49.78% in E&O.
In June, Kerjaya revised upward its target order book replenishment for 2022 to at least RM1.5 billion, after surpassing the initial target of RM1.2 billion, with RM1.3 billion worth of contract wins so far this year. Its outstanding order book stood at RM4.3 billion at end-June, which will provide earnings visibility for the next three years.
“Of the RM4.3 billion outstanding order book, about 40% is from related party transactions. Meanwhile, the group has an active tender book of up to RM2 billion,” said TA Securities’ Chan.
According to Kenanga Research analyst Lum Joe Shen, Kerjaya’s recent joint venture (JV) with Samsung C&T will likely tender for the reclamation works at STP2, valued at RM1.2 billion to RM1.5 billion, as the latter possesses regional reclamation experience in South Korea, Singapore and Hong Kong. “In addition, the JV is keen to participate in other infra projects such as airports and seaports,” he said in a June 27 report.
Kerjaya reported a 35% growth in net profit to RM57.4 million for the first half of the financial year 2022 ended June 30 (1HFY2022), from RM42.39 million a year earlier, on higher progress billings amid increased site activities. Revenue was up 26% year on year to RM577.51 million.
The construction division remained its largest revenue contributor, accounting for 99.4% of revenue in 1HFY2022. The group’s net cash position improved to RM214.6 million at end-June, from RM197.3 million in the previous quarter.
In 2H2022, UOB Kay Hian expects Kerjaya’s earnings to strengthen further on the back of higher foreign labour intake and the easing of construction material prices, which will help to improve margins.
“After achieving its target job wins of RM1 billion in 2021, we are optimistic Kerjaya will continue to clinch more jobs (internal and external) as we expect more contracts to be tendered out with the reopening of the economy,” the research house said in an Aug 23 report.
According to Bloomberg, all six analysts who cover the stock have a “buy” call and an average target price of RM1.47, implying an upside potential of 29% from its closing price of RM1.14 last Thursday. The stock had fallen 7.32% year to date.
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