Investment Highlights

• We recently met up with Crest Builder Holdings Bhd (CBHB). Management shared the company’s plan for FY20 and beyond. We believe the company’s medium-term outlook is positive, anchored by several construction wins earlier this year while the upcoming property launch will be one of the earnings contributor beyond FY20. CBHB has stable income from property investments and concession arrangement. We value CBHB at RM1.30 based on SOP valuations (Exhibit 4).

• CBHB’s income is mainly derived from 4 segments: (i) construction; (ii) property development; (iii) property investment & management; and (iv) concession arrangement. Refer to Exhibits 1 & 2 for FY18 breakdown.

• The construction business is mainly focused on infrastructure and building works of residential developments, healthcare amenities, infrastructure, leisure amenities, educational facilities and commercial developments. CBHB bagged a RM155.1mil contract from Glomac Segar for the construction of a proposed plaza in Kelana Jaya in October 2019. Meanwhile earlier this year, the company secured a contract worth RM99.6mil to construct a 26-storey hotel at Jalan P Ramlee, KL. Presently, the remaining order book stands at RM1.1bil (Exhibit 3), indicating stable income for the next 2–3 years.

• For the property development division, CBHB is planning a mixed commercial development, namely Latitud8, which is a JV project with Prasarana. Building on top of the Dang Wangi LRT station. Latitud8 will feature a lifestyle retail podium with a business centre and convention facilities. The project will also include 418 SOHO units with built-up areas ranging from 650 sq ft to 900 sq ft selling at about RM1,000 psf. CBHB is targeting to launch Latitud8 in early 2020. The project has a GDV of approximately RM1.1bil. The JV partner Prasarana will receive 21.2% of the total GDV in a combination of cash and completed units. The company had a soft launch in Hong Kong and China earlier and received a booking rate of 30%.

• The company is planning another mixed development located at Kelana Jaya, comprising retail units, serviced residential suites and offices. The project has a GDV of approximately RM1.0bil and is targeted to be launched in 2021.

• CBHB has two investment properties – The Crest and Tierra Crest. The Crest, located at Seksyen 19, PJ, is a 16-storey office tower with an NLA of 144.8K sq ft and 1,500 car parks. The rental rate is RM9.0mil p.a. Tierra Crest, in Kelana Jaya, is a 17-storey commercial development comprising a 3-level retail podium and two office towers with an NLA of 285K sq ft yielding RM9.0mil p.a. CBHB also manages a concession (51% stake) of the 5,000-student capacity UiTM Tapah 2 campus with the Ministry of Education and Universiti Teknologi Mara (UiTM). UiTM’s Tapah campus receives annual concession income of RM43.5mil until January 2034.

FINANCIALS AND VALUATION

Based on our estimates, CBHB will make a net profit of RM27mil for FY19, which lower than FY18’s RM70.3mil. This is mainly due to the absence of income from property development following the completion of the Residensi Hijauan project in 1QFY19. Net profit shall remain flat in FY20 due to the same reason. FY19–20 earnings will be mainly supported by construction, property investment, concession and inventories from property development. We expect earnings to expand to RM39.6mil in FY21, contributed mainly by Latitud8 which is scheduled for launching in early 2020. On top of that, CBHB is planning to tender RM2.2bil to RM2.8bil of construction jobs in FY20. Historically, the company has a success rate of between 15% and 20%. CBHB does not have a dividend policy but the company has been consistently paying dividends for the past 10 years. For FY17 and FY18, CBHB paid dividends of 4 sen and 4.5 sen respectively. We expect a similar payout for FY19 and FY20.

We are cautious of the above average gearing level of 0.76x as of 1HFY19 (FY18: 0.89x) with interest coverage of about 3x.

At current price, the stock is trading at an undemanding forward PER of 3.9x–5.8x and P/NTA of 0.4x for FY19F–21F. We value CBHB at RM1.30 based on SOP valuations (Exhibit 4) implying forward PERs of 7.9x, 7.8x and 5.4x for FY19F–21F respectively.

Source: AmInvest Research - 13 Nov 2019