KUALA LUMPUR (Nov 22): RHB Investment Bank Research (RHB IB) has maintained its “buy” rating on Kerjaya Prospek Group Bhd at RM1.49 with a new target price (TP) of RM1.71 (from RM1.78) and said the company is in a sweet spot to secure more jobs in the coming months.
Kerjaya Prospek recorded a 9.6% year-on-year (y-o-y) increase in core profit to RM97.1 million for the first nine months ended Sept 30, 2023 (9MFY2023) despite the cancellation of the RM404.4 million building job awarded by EcoFirst Consolidated Bhd.
According to a note Wednesday, RHB IB stated this result is attributed to the improved construction billings and property profits and is broadly in line with its estimate at 71% but trailed street’s projection at 69% of full-year forecasts.
The research house noted that the construction segment recorded a profit after tax (PAT) of RM41.3 million in the third quarter ended Sept 30, 2023 (3Q2023), which increased 46% y-o-y, backed by higher progress billings from ongoing jobs.
Meanwhile, the property development unit reported a PAT of RM2.8 million in 3Q2023, rebounding from a loss of RM0.1 million in 3Q2022.
This positive performance was driven by sales from the Vue @ Monterez project, which had a gross development value (GDV) of RM250 million, with approximately 35% already sold by the end of 3Q2023.
“The property arm is expected to contribute more in FY2024, following the launch of the Papyrus @ North Kiara project with a GDV of RM500 million in 1Q2024,” it said.
Considering the cancellation of the contract by EcoFirst via its subsidiary BCM Holdings Sdn Bhd, RHB IB reported an outstanding order book amount of approximately RM4.3 billion with a 3.8 times cover ratio, excluding the RM404.4 million job.
“Kerjaya Prospek will be taking the necessary steps to enforce its right to recover the pre-agreed damages payable stated in the initial contract for the RM404.4 million job.
“We understand that Kerjaya Prospek has not mobilised any resources for this job, which means year-to-date (YTD) earnings did not reflect any progress billings from BCM,” said RHB IB.
The research house also believes that Kerjaya Prospek is well-positioned to secure additional projects in the upcoming months backed by its RM2 billion tender book, encompassing not only residential buildings but also data centres and semiconductor-related facilities that could be secured through its collaboration with Samsung C&T.
Considering the revision of its FY2023 job replenishment target to RM1.3 billion from RM1.8 billion, in addition to the exclusion of the RM404.4 million job from BCM Holdings, RHB IB cuts its earnings forecast for Kerjaya Prospek by 3% for 2023, by 5% for 2024, and by 5% for 2025.
In a separate note, Kenanga Research cut its earnings forecast for Kerjaya Prospek by 10% for 2023 and by 4% for 2024 to account for the cancellation of the EcoFirst contract.
It trimmed its TP by 4% to RM1.67 from RM1.75, but maintained its “outperform” call on Kerjaya Prospek.
“We continue to like Kerjaya Prospek for its innovative construction solutions and lean cost structure that translate to above-average margins, its hands-on management team and track record of strong execution, its ability to consistently win external jobs, and the availability of job orders from related parties (Eastern & Oriental Bhd and Kerjaya Prospek Property Bhd).
“Risks to our call include further deterioration in the prospects for building jobs, rising input costs, project cost overruns, and liabilities arising from liquidated ascertained damages (LAD),” it added.
That aside, PublicInvest Research downgraded its rating on Kerjaya Prospek to “neutral” with a lower sum-of-parts TP of RM1.52 from RM1.63 due to the changes made to its forecasts arising from the cancellation of the contract.
According to the research house, its forecast for 2023-2025 is revised downward by 3.6% on average per year post-billing adjustment.
On a brighter note, PublicInvest noted that the downside risk from the discontinued contract is limited as the group has not incurred much cost as yet and might be able to seek compensation from the counterparty.
“We understand Kerjaya Prospek could recover damages payable amounting to approximately 5%–10% of the contract value from the counterparty, BCM Holdings. As the client has not surrendered the site to Kerjaya Prospek yet, we believe the financial impact to the group is negligible,” it added.
At the midday break, Kerjaya Prospek was one sen or 0.67% lower at RM1.48, giving it a market capitalisation of RM1.88 billion.
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Source: EdgeProp.my
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