Crest Builder Holdings Bhd
(Nov 12, RM1.46)
Maintain “outperform” with lower target price (TP) of RM1.58 from RM1.62: Yesterday, Crest Builder Holdings Bhd (Crest) proposed to undertake a placement of up to 10% of its issued and paid-up share capital.

Based on the illustrative issue price of RM1.42, the proposed placement of 10% would raise up to RM29.8 million.

The rationale for the cash call is for the preliminary funding cost of its Dang Wangi development project which is currently underway.

We are neutral to positive with the cash call as it allows Crest to raise funds without incurring further interest cost as compared with bank borrowings.

At the same time, it would also help to lower its net gearing as of second quarter (2Q14) of 1.3 times significantly to 0.93 times based on a maximum scenario assumption in which all of its 38.3 million outstanding warrants and 7.5 million shares in its employee share option scheme are fully converted.

Crest’s outlook remains intact with management’s focus on continuing to secure more quality construction order book replenishments with pre-tax margins ranging from 8% to 10%.

As for its property development segment, construction works on its first Transit-Oriented Development project at Dang Wangi light rail transit station is progressing well and slated for launch in early 2015.

No changes to our financial year 2014 and financial year 2015 (FY14 and FY15) estimates.

We reiterate our “outperform” call on Crest with a lower sum-of-parts driven TP of RM1.58 from RM1.62 previously as we factor in the enlarged share base from the proposed placement.

We believe its Dang Wangi project (with a gross development value of RM1 billion) would be a major earnings driver. — Kenanga Research, Nov 12

This article first appeared in The Edge Financial Daily, on November 13, 2014.