This article first appeared in The Edge Financial Daily on June 24, 2019

Kerjaya Prospek Group Bhd
(June 21, RM1.33)
Downgrade to underperform with an unchanged target price (TP) of RM1.20: Kerjaya Prospek Group Bhd announced last Thursday that it had secured a contract worth RM227.3 million for the construction of a development project located near Jalan Bukit Bintang.

The developer behind the project, Axon Bukit Bintang, is Asset Kayamas, which is one of the major developers of Rumah WIP in Kuala Lumpur.

We are neutral on the win as it is still within our financial year 2019 estimated (FY19E) order book replenishment of RM1.2 billion.

To date, Kerjaya Prospek replenished RM1.1 billion worth of jobs, making up 92% of our FY19E replenishment target.

Assuming a pre-tax margin of 15%, the project is expected to contribute an aggregate net profit of RM25.5 million over three years. The win also brings its outstanding order book up from RM3.1 billion to RM3.3 billion, providing them easily three years of visibility.

There are no changes to our FY19-FY20E earnings.

Downgrade to “underperform” with an unchanged sum-of-parts-(SOP)-derived TP of RM RM1.20 pegged at unchanged valuation of 10 times price-to-earnings ratio (PER) on FY20E construction earnings, due to the recent rise in share price.

The valuation ascribed to Kerjaya Prospek is at one of the higher-end of our small-to mid-cap PER range of 6 to 11 times due to their strong delivery capabilities with no delays in project delivery.

This is coupled with fatter margins compared to other players.

Based on our SOP-derived TP, it implies a 9.5 times FY20E PER which is lower than our ascribed 10 times to its construction division as it is diluted by its property division which we ascribed a lower multiple of 5 times.

Risks to our call include lower-than-expected job wins, delay in construction progress and lower construction margins. — Kenanga Research, June 21