Crest Builder focuses on bread-and-butter business

by **Cals** Thu 18 Sep 2014, 21:48

Business & Markets 2014

Written by Kenanga Investment Bank Bhd

Thursday, 18 September 2014 09:44

Crest Builder Holdings Bhd
(Sept 17, RM1.50)
Maintain market “outperform” with target price (TP) of RM1.62: We met up with Crest Builder recently and came back feeling reassured. The management has prudently pushed back some of its development projects while remaining focused on its bread-and-butter business such as construction and affordable housing development and the commencement of construction works on its first transit-oriented development (TOD) project namely The Bank@Jalan Ampang.

To recap, its affordable housing project Alam Sanjung in Batu Tiga, Selangor, was well received with all non-bumi units taken up, while the construction works for its maiden TOD project in Dang Wangi, Kuala Lumpur have already kicked off. Hence, we are reiterating our “outperform” call with an unchanged TP of RM1.62 based on sum-of-parts (SOP) valuation.

Crest Builder’s external outstanding order book remains at RM70 million, giving another year of earnings visibility. The management highlighted that its construction division is still its bread and butter although the property contribution is becoming more prominent in the last few years.

While Crest Builder is actively on the lookout for order book replenishment, it is focused on jobs with decent pretax margins of at least 8% to 10%. Given their strict selection criteria in jobs ranging from infrastructure to high-rise building jobs, we are maintaining our order book replenishment assumptions of RM150 million and RM300 million for financial year 2014 (FY14) and FY15 respectively. As we understand, the management has rescheduled some of its development project timelines which will now be staggered over several years rather than commencing all projects’ construction works concurrently as originally planned.

We think this is a prudent move by management so as to not overstretch its balance sheet, and it also allows for better planning and positioning of future projects, particularly given the current challenging property market.

Development projects in the pipeline are 3 Stones at Shah Alam with a gross development value (GDV) of RM330 million, The Bank with a GDV of RM1 billion, The Galleria at Jalan Ampang, Kuala Lumpur, with a GDV RM1.3 billion, and lastly the Kelana Jaya light rail transit (LRT) station project with a GDV of RM1 billion. We expect 3 Stones and The Bank to take off in the near term while The Galleria and Kelana Jaya LRT station projects are to commence end-2015 onwards.

We believe that 3 Stones would be able to sell well as demand from the affordable segment remains strong. Crest Builder’s maiden TOD project, The Bank, which has an estimated GDV of RM1 billion has finally commenced. We would expect management to launch the project by the end of 2014 or early 2015, priced between RM1,050 and RM1,250 per sq ft which we deem as attractively priced for Kuala Lumpur city centre pricing and the project is targeted at both foreign and local buyers.

While there are no changes to our FY14 and FY15 earnings estimates as we are expecting a stronger second half of financial year 2014 (2HFY14) performance, we reiterate our “outperform” call on Crest Builder for the commencement works on its first TOD joint-venture project with the local transport authority namely The Bank as we expect this project would be a huge earnings catalyst for Crest Builder.

Hence, we maintain “outperform” with an unchanged TP of RM1.62 based on SOP. We deem our valuation as conservative as we only factored in The Bank into our valuation whereby Crest Builder could be valued at RM1.94 based on a blue-sky scenario should we factor in all of its TOD projects in which we might look forward to upgrading over the next six months should there be more clarity on these projects. — Kenanga Investment Bank Bhd, Sept 17

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This article first appeared in The Edge Financial Daily, on September 18, 2014.[/size]