KERJAYA: Earnings Exceed Expectations on Robust Construction and Property Segments; Target Price Upgraded

A leading construction and property development group has reported a robust financial performance, with its nine-month core profit for FY25 significantly exceeding expectations. The strong results were primarily driven by exceptional contributions from both its construction and property segments, prompting an upgrade in its target price and a maintained “BUY” recommendation.

Performance Review

The group’s 9M25 core profit reached MYR177.9 million, marking a substantial 52.4% year-on-year increase. This figure surpassed consensus forecasts, accounting for 89% and 88% of the investment bank’s and Street’s full-year FY25 estimates, respectively. The positive deviation underscores the company’s operational efficiency and strategic execution.

The construction arm was a key driver, recording a profit after tax (PAT) of MYR66.4 million in 3Q25, a 52% year-on-year surge. This was attributed to higher progress billings from ongoing projects, maintaining a commendable PAT margin of 13.9% (up from 8.9% in 3Q24). Concurrently, the property arm’s 3Q25 PAT tripled to MYR7.8 million from MYR2.4 million in 3Q24, bolstered by strong property sales from projects like The Vue @ Monterez (GDV: MYR300 million) and Papyrus @ North Kiara (GDV: MYR500 million).

Order Book and Future Growth

The company continues to demonstrate robust order book replenishment. It recently secured a MYR350 million contract in Batu Kawan, Penang, marking its eleventh job win for FY25 and its fifth contract secured in November alone. Year-to-date FY25 job wins have now met the MYR1.6 billion replenishment target. The outstanding order book currently stands at an impressive MYR4.1 billion, representing a solid 2.4x cover ratio.

Future growth prospects are further enhanced by the potential for significant industrial space project wins. The group is actively eyeing MYR2-3 billion worth of tenders related to industrial developments, including data centers, factories, and warehouses, potentially through a joint venture with SCT. SCT’s proven track record, having built iconic structures like the Petronas Twin Towers and Merdeka 118 Tower, and constructing four data centers in late 2024, positions the partnership as a strong contender in this segment.

Revised Outlook and Recommendation

Following the stronger-than-expected results, the investment bank has revised its earnings estimates for FY25F-27F upwards by +14.7%, +14.3%, and +13.4%, reflecting higher progress billings from property and construction projects. Consequently, the target price has been raised to RM3.35 from RM3.15, based on a new Sum-of-Parts (SOP) valuation, which includes a 2% ESG premium.

The stock’s FY26F P/E of approximately 17x is perceived to have further upside potential, especially when compared to the Bursa Malaysia Construction Index’s P/E of 17x during the 2017 construction upcycle. This positive outlook is underpinned by sustained property demand in key regions such as Penang, Klang Valley, and Johor, coupled with anticipated industrial job opportunities.

However, potential downside risks include a slowdown in the property market and prolonged cost pressures. Despite these risks, the overall assessment remains positive, and the investment bank maintains its “BUY” recommendation.