Crest Builder Holdings Bhd
(Nov 6, RM1.49)
Maintain “outperform” with a target price (TP) of RM1.62: Crest Builder Holdings was awarded a contract by Gelangang Harapan Construction Sdn Bhd (GHC) for the construction of the superstructure works of an office building spanning over 19 months for a total consideration of RM90 million.
We are “neutral” to “positive” with the announcement as this is Crest Builder’s second contract award for the year which falls within our order book replenishment assumption of RM150 million for the financial year 2014 (FY14).
To recap, Crest Builder secured its first order book replenishment in February 2014 amounting to RM63.9 million and with the RM90 million replenishment from GHC, Crest Builder has fully met our FY14 order book replenishment assumption of RM150 million.
The RM90 million construction award would further give the outstanding order book (previously at about RM70 million) a lift to approximately RM160 million, which would provide the group another 1½ years earnings visibility.
Crest Builder’s outlook remains intact with the management focusing on its bread-and-butter business by continuing to secure more quality construction order book replenishments with pre-tax margins ranging between 8% and 10%. As for its property development segment, the construction work on its first transit-oriented development (TOD) project at Dang Wangi light rail transit station has been progressing well and is slated for launch in early 2015.
There are no changes to our FY14 to FY15 estimates, as the construction order book replenishment was well within our FY14E order book replenishment assumption of RM150 million. As for FY15, we have an order book replenishment assumption of RM300 million.
We reiterate our “outperform” call on Crest Builder with an unchanged TP of RM1.62 based on sum-of-parts, as we believe that Crest Builder would benefit from the robust construction sector in the coming years coupled with the potential earnings catalyst from its first TOD project, namely the Bank @ Jalan Ampang with a gross development value of RM1 billion. Our TP of RM1.62 implies a FY15 core price-earnings ratio of 8.5 times that is still within our mid-cap developers’ average of eight times to nine times.
Risks include Crest Builder being unable to launch its TOD projects, slower-than-expected progressive billings and lower-than-expected construction order book replenishment. — Kenanga Research, Nov 6
This article first appeared in The Edge Financial Daily, on November 7, 2014.