KUALA LUMPUR (April 12): RHB Small Cap ASEAN Research has maintained its "buy" rating of Kerjaya Prospek Group Bhd at RM1.44 with a higher target price (TP) of RM1.71 and said Kerjaya's RM3.4 billion in outstanding orders should support its future income from construction.

Its analysts Danial Razak and Eddy Do said the adjusted TP reflects the strong annual replenishment rate and outstanding order book of RM3.4 billion that will enhance Kerjaya's bottom line and further strengthen its post-pandemic recovery.

Last week, Kerjaya's 49%-owned subsidiary Kerjajaya Bina BMK Sdn Bhd was awarded a construction contract from BBCC Development Sdn Bhd for the construction of the main building of a proposed development project located on Jalan Pudu. BBCC is a joint-venture (JV) company set up by the Employees Provident Fund (EPF), UDA Holdings Bhd and Eco World Development Group Bhd (EcoWorld).

The contract value is estimated at RM153.5 million. Construction is expected to commence on April 15, 2021 and reach completion in the next 30 months, bringing the total outstanding order book to RM3.4 billion.

"We expect earnings from property development to turn meaningful in FY21 (the financial year ending Dec 31, 2021) with two new projects expected to be launched in the second half. These are Yakin Land and Monterez developments with a combined GDV (gross development value) of RM630 million. Both projects have commenced construction works since 2019 and 2020 respectively, which will allow billings to be progressively recognised once launched and taken up."

The analysts highlighted Kerjaya's ability to achieve a 30% compound annual growth rate (CAGR) in the next three years, adding that the stock trades at an attractive valuation of 10 times price-earnings (P/E) (below the five-year mean) to earnings per share (EPS) for FY22.

Risks to earnings include margin erosion from increasing competition, higher raw material prices, lower-than-expected new contract wins and a severe slowdown in the property market, which is the company's largest client base.

Sudden restrictions on activities — possibly due to tighter lockdown measures if implemented — may present another downside risk.

At 10.09am today, Kerjaya had risen 2.08% or three sen to a high of RM1.47, valuing it at RM1.826 billion.