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Macquarie cuts Kerjaya Prospek Group's EPS forecast

KUALA LUMPUR (Sept 17): Macquarie Capital Securities (M) Sdn Bhd said today that it had cut its Kerjaya Prospek Group Bhd earnings per share (EPS) forecast by 18% for financial year ending Dec 31, 2019 (FY19) and 8% each for FY20 and FY21, in anticipation that the builder's property developer clients will extend project timelines to manage cash flow, amid the property market slowdown.

As such, Kerjaya Prospek Group's earnings recognition for some projects are shifted by another year, in anticipation of project timeline extensions, according to Macquarie analyst Aiman Mohamad.

"According to (Kerjaya Prospek Group's) management, it is seeing more requests by clients to move the progress timeline of their projects in order to manage payments to contractors.

"This is one of the key reason for Kerjaya Prospek Group's earnings miss in 1HFY19. While this could be alarming, management guided that its receivable days still average between 45 and 60 days and at this juncture, it does not see any potential impairments. We expect this situation to persist in FY20-21E, which led us to cut our earnings estimates due to the shift in progress timeline," Aiman wrote in a note today.

According to him, Macquarie however maintained its outperform rating for Kerjaya Prospek Group shares, with an unchanged target price (TP) of RM1.60.

At Bursa Malaysia today, Kerjaya Prospek Group's share price closed one sen or 0.71% higher at RM1.41 at 5pm.

Aiman said: "Due to the weak 1HFY19 earnings, we revised the timeline of earnings recognition. While our TP is maintained due to higher target PE (12x from 11x), FY19-21E EPS (forecast were) moved by -18%, -8% and -8% respectively.

"We maintained our margin estimates for Kerjaya Prospek Group, as management guided that there should not be any margin impact from the project delays, as Kerjaya Prospek Group’s strong cash balance has made it self-sufficient to finance its working capital requirements without having to increase its gearing," Aiman said.

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