Crest Builder’s Dang Wangi project to launch end-2014

by **Cals** Mon 10 Mar 2014, 11:15

Crest Builder’s Dang Wangi project to launch end-2014
Business & Markets 2014
Written by Kenanga Research
Monday, 10 March 2014 10:17
Crest Builder Holdings Bhd
(March 7, RM1.54)
Maintain outperform with an unchanged target price of RM1.73: For the year, Crest Builder Holdings Bhd would still be very focused on its affordable housing projects. It will launch its Batu Tiga Phase 2 project with an estimated gross development value (GDV) of RM300 million, comprising units with built-ups of 900 sq ft onwards priced between RM400,000 and RM600,000 which we believe would definitely sell well given its affordable price range. Management also indicated it is actively looking for around 8ha to 10ha of landbank within the Greater Klang Valley as replenishment for continuity purposes, as the Batu Tiga Phase 2 project is Crest Builder’s final development in that area.

As we understand from management, the commencement of works had seen delays; still pending approval of the building plan for Dang Wangi. However, management reassured us that the long-awaited construction works for Dang Wangi would likely take off in the second half of 2014 post Hari Raya Aidilfitri and it is expected to be launched sometime between end-2014 and beginning-2015. The indicative pricing per sq ft (psf) for Dang Wangi ranges between RM1,100 and RM1400, and management will target 50% of foreign buyers given that its Dang Wangi project pricing will be above the affordable range.

Management is expecting the construction of both of these projects to commence in 2015. The indicative price psf for both of these projects would be in the range of RM900. Based on surrounding property prices, we believe both projects will be fairly priced and they will be well received upon launch. However, based on our conservative assumptions, we have yet to factor both projects into our FY15 earnings as we are expecting these projects to take off late 2015.

Its outstanding order book currently stands at RM110 million and management is targeting an order book replenishment of about RM500 million from external contracts for the year, mainly from building projects.

As for infrastructure projects, management is currently looking at potential job awards from the East Coast Economic Region. For the year, we conservatively assume an external order book replenishment of RM300 million only given that Crest Builder is highly selective in taking up external construction works.

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We would expect its net gearing to at least increase to 1.3 times as it commences work for the Dang Wangi project in financial year 2014 (FY14). It is also looking to refinance its debts, and a major portion would be ringfenced by its investment properties with positive cash flows. Stripping that off, its net gearing will come down to a comfortable range of 0.5 times.

Management is looking to sell one of its investment properties (Tierra Crest) if the price is right and this could potentially bring down its net gearing to 0.3 times. Hence, we believe that Crest’s net gearing is manageable, inclusive of financing for its Dang Wangi project.

We lowered our FY14E core net profit by 20% and FY15E by 12%, as we further push back Dang Wangi’s earnings contribution, as the expected constructionof Dang Wangi is later than expected.

We are reiterating our “outperform” call on Crest Builder given its transit-oriented development joint ventures with the local transport authority, and we also deem our fair value of RM1.73 as conservative as we have only factored in its Dang Wangi project. The blue-sky scenario for its fair value could be up to RM2.09, should we factor in its Jalan Ampang and Kelana Jaya projects, although subsequently its net gearing would also be a lot higher. — Kenanga Research, March 7

This article first appeared in The Edge Financial Daily, on March 10, 2014.