PETALING JAYA: TA Securities has downgraded Kerjaya Prospek Group from “buy” to “hold” despite the construction company bagging an RM104.7 million contract.
The research house downgraded the group due to its limited potential upside following the recent price rally.
In a Bursa Malaysia filing yesterday, Kerjaya announced that it had accepted a letter of award for the contract from Persada Mentari Sdn Bhd, an indirect subsidiary of Eastern & Oriental Bhd (E&O).
The contract is for the construction and completion of 69 units of three-storey semi-detached and terrace houses on Andaman Island, Penang.
The construction works are expected to commence on Dec 1, 2023, and are scheduled to take 26 months for completion.
In a statement, TA Securities said it maintained Kerjaya’s target price of RM1.57 based on 12 times the group’s estimated earnings for the calendar year 2024.
Furthermore, TA Securities also maintained Kerjaya’s earnings forecast for the financial year ending Dec 31, 2023 (FY2023) to FY2025 as the job win from Persada fell within its FY2023 order book replenishment assumption of RM1.6 billion.
“This is the ninth construction job secured by Kerjaya in 2023, bringing the total year-to-date contract win to about RM1.6 billion.
“Assuming a gross margin of 14%, the project is estimated to generate RM10.5 million of net earnings throughout the construction period,” it stated.
TA Securities also said that Kerjaya is not unfamiliar with Andaman Island, as the group had previously won some jobs on the island.
“Following the job win, Kerjaya’s total outstanding order book now stands at about RM4.8 billion, equivalent to 4.3 times its FY2022 revenue,” said the research house.
It is deemed as a recurrent related party transaction, as Kerjaya’s non-independent non-executive chairman Tee Eng Ho is also the executive chairman and an indirect major shareholder of E&O.
As at 12.14pm, Kerjaya’s share price was up by 1 sen or 0.68% at RM1.49, giving it a market capitalisation of RM1.89 billion.