Kerjaya Prospek Group Bhd - Building Growth, Cementing Value
Tue, 13-May-2025 07:30 am
by Team Coverage • Apex Research

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KERJAYA (7161)

Target Price (RM)

2.50

Recommendation

Buy

  • Kerjaya Prospek Group Bhd (KERJAYA) is the fourth-largest construction player in Malaysia by market capitalisation and is recognised for its track record of delivering high-quality projects for leading developers such as Eastern & Oriental Bhd (E&O), UEM Sunrise Bhd, and SP Setia Bhd.

  • We project FY25F/FY26F/FY27F core earnings to register at 198.0m/RM209.5m/RM235.7m, representing a CAGR of 14%.

  • Future core earnings growth will be driven by (i) the expansion of regional infrastructure projects, (ii) the recognition of an unbilled orderbook totalling RM4.6bn, and (iii) a robust project pipeline.

  • We initiate coverage on KERJAYA with a BUY recommendation and TP of RM2.50 by ascribing a P/E multiple of 15.0x to its FY26F EPS of 16.6 sen, along with three-star ESG rating.

 

Long-term earnings visibility. KERJAYA’s outstanding orderbook of RM4.6bn will keep the Group busy for the next three years. With an orderbook-to-cover ratio of 2.3x against FY24 construction revenue, earnings visibility remains clear until FY27. Furthermore, KERJAYA is equipped with a tenderbook consisting of building jobs worth RM2-3bn. In relative to our orderbook replenishment assumption of RM1.8bn, KERJAYA is optimistic about securing at least RM1.6bn in new contracts in FY25, which will sustain future earnings growth.

 

Robust project pipeline. KERJAYA is well-positioned to capitalise on a robust pipeline of projects through its joint ventures and related entities, which will strengthen its construction orderbook. Its sister company, Kerjaya Prospek Property Bhd (KPPROP), is set to launch two high-rise residential projects in the Klang Valley by CY25: one in Shah Alam with a GDV of RM290m and another in Damansara Damai with a GDV of RM500m. Additionally, related party E&O plans RM2bn worth of launches for its Andaman Island development in Penang by CY25, with RM1.1bn of GDV yet to be rolled out. On the industrial front, KERJAYA aims to secure RM2-3bn in tenders for data centres (DCs), factories, and warehouses through its joint venture with Samsung C&T, with outcomes expected by 4QCY25. These projects will enhance earnings visibility and drive growth in the years ahead.

 

Solid construction margins. KERJAYA stands out with a core net margin of 9%, well above the 5%-6% average for Malaysia's construction industry. This strong performance is driven by its strategic focus on high-rise and niche property projects, which enables the Group to command better pricing power and higher profitability. Additionally, KERJAYA's investment in in-house capabilities, such as its self-climbing platform and aluminium formwork system, has boosted construction speed and reduced material costs. These operational efficiencies have helped the Group maintain resilient margins in a competitive construction landscape.

 

Major Infrastructure Projects Drive Construction Growth. The construction sector in Penang, Kuala Lumpur, and Johor are gaining momentum, driven by significant infrastructure projects. At Penang, the Mutiara LRT Line will enhance urban connectivity within the island, while Kuala Lumpur's MRT 3 revival is expected to boost sector growth. In Johor, the Autonomous Rail Rapid Transit (ART) system and the RTS Link within the Johor-Singapore Special Economic Zone (JS-SEZ) will improve public transport and cross-border connectivity. These developments collectively reinforce to a positive outlook for the construction industry across these regions.

 

Valuation and Recommendation. We initiate coverage on KERJAYA with a BUY recommendation with a target price of RM2.50, based on an assigned 15.0x P/E multiple to its FY26F EPS of 16.6 sen, alongside a three-star ESG rating. The valuation represents a 13%–27% discount to key construction peers, GAMUDA (17.2x P/E) and SUNCON (20.5x P/E), reflecting market concerns over the oversupply of high-rise office buildings in the property sector.

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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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