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KERJAYA: Order Book Strengthened by New Contract, Valuation Concerns Lead to Neutral Rating
| Investment Bank | PUBLIC INVESTMENT BANK |
|---|---|
| TP (Target Price) | RM2.85 (+5.6%) |
| Last Traded | RM2.70 |
| Recommendation | NEUTRAL |
A major construction group recently announced the securing of a new building contract worth RM87.7 million. While the contract bolsters the company’s outstanding order book, an investment bank has revised its rating for the group to “Neutral,” citing limited upside following a recent rally in its share price.
Contract Win and Order Book Impact
The contract, awarded by E&O Express Sdn Bhd, an indirect subsidiary of related-party Eastern & Oriental (E&O), involves the construction of 133 units of shop lots in Elmina, Shah Alam. Valued at RM87.7 million, the project is slated to commence on November 17, 2025, and is expected to be completed within 30 months. This new win will increase the group’s outstanding construction order book by 2.5%, bringing the total to RM3.6 billion, which provides robust earnings visibility for the next two to three years.
The new job is estimated to contribute approximately 4.4% towards the group’s FY25 job replenishment target of RM2.0 billion. Cumulatively, year-to-date new contracts now total RM958 million, representing 47.9% of the FY25 target order book. Analysts project an approximate RM8.0 million in profit from this project over the 30-month period, based on a low-teen profit margin assumption.
Analyst Outlook and Rating Adjustment
Despite the new contract win, Public Investment Bank has maintained its earnings forecasts for the group, noting that the project was already accounted for within its FY25 order book replenishment assumptions. However, the firm has downgraded its recommendation to Neutral from its previous stance, while keeping its 12-month target price unchanged at RM2.85. This adjustment comes as the group’s share price has experienced a significant rally, which has effectively priced in near-term positive catalysts and left limited upside to the target price.
The current trading price stands at RM2.70, implying an expected return of 5.6% to the target price. The group is expected to continue focusing on securing higher-margin projects and implementing strategies to navigate ongoing business and economic challenges.
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