KERJAYA: Strong Order Book and Cost Controls Drive Positive Outlook, Target Price Raised

Overview and Valuation Update

An investor briefing held recently highlighted robust future prospects, underpinned by a significant order book and disciplined cost management. The investment bank maintains a BUY recommendation, raising its target price to RM3.39 from RM3.35 previously, signaling confidence in the company’s sustained growth trajectory, with an implied 19.4% upside from the last traded price of RM2.84.

Construction Division Bolsters Earnings Visibility

The company’s construction division has secured approximately RM1.6 billion in new order book year-to-date, elevating its total outstanding order book to roughly RM4.1 billion. This figure represents 2.2 times its projected FY24 construction revenue, providing substantial near-term earnings visibility. A notable 73% of these contracts are related-party projects, which are known to facilitate smoother execution and support healthy margin profiles.

Management remains optimistic about achieving its new order book replenishment targets of RM1.8 billion for FY25 and RM2.0 billion for FY26. This confidence is backed by a strong pipeline, including over RM1.0 billion in internal jobs from E&O and Kerjaya Prospek Property, complemented by an external tender book exceeding RM3.0 billion. The external pipeline encompasses RM1.5-2.0 billion in residential projects, two data centre tenders—one of which is in its finalisation stage and could contribute at least RM1.0 billion—and several industrial property opportunities.

Despite a recent 30% increase in ready-mix concrete prices, management assures that construction costs will not be materially impacted. This resilience stems from long-term procurement arrangements for building materials, which ensure price stability, and the high proportion of internal jobs facilitating tighter cost control and margin protection.

Expanding Footprint in Property Development

The property development segment continues to perform strongly, with ongoing projects like The Vue @ Monterez (99% take-up) and The Papyrus @ North Kiara (82% take-up) recording robust sales and set for delivery next year. Future growth is anticipated from upcoming launches in Tanjung Bungah (estimated GDV: RM830 million) and Jalan Puchong (estimated GDV: RM800 million).

With a remaining development landbank of 77 acres, comprising strategic parcels in Seberang Perai and Batu Kawan, the company maintains a healthy pipeline for future developments. Furthermore, the company, with a strong cash position of RM327.2 million, actively evaluates attractive land-banking opportunities for strategic acquisitions, although no special dividends are expected for FY25 as cash is being preserved for these potential investments, while maintaining a consistent dividend payout target of 12 sen per share.

Future Outlook and Investment Rationale

The investment bank remains optimistic regarding future prospects, citing the consistent robust new order book replenishment and the sizeable development land pipeline. These factors are expected to ensure earnings visibility for the next three to four years, with stable low double-digit PAT margins of 10-12%. The integrated business model, which leverages synergies between construction and property development, allows for optimal resource utilisation and healthy margin preservation amidst industry-wide cost pressures.

Following a revised upward adjustment to job win assumptions for FY26 and FY27, earnings forecasts have been raised by 1.4% for FY26 and 3.9% for FY27, respectively, while FY25 estimates remain unchanged. The investment bank reiterates its BUY call, driven by the company’s solid earnings visibility, robust order book replenishment, and potential growth in industrial property construction, especially through its partnership with Samsung. The updated target price of RM3.39 is based on 17x CY26 EPS and a 3% ESG premium for its 4-star ESG rating.