Investment Highlights

• We maintain our BUY recommendation on Crest Builder Holdings (CBHB) with an unchanged fair value of RM1.76 based on SOP valuation (Exhibit 2). We made no changes to our FY20– FY22 net earnings forecasts.

• During a recent engagement with the company, management updated us on its latest development and the impact of the movement control order (MCO) and Covid-19 to CBHB’s business. Also, we believe it is worth to note that CBHB and its friendly parties have donated medical supplies worth over RM200K to Hospital Selayang.

• The construction progress of its projects is 10%–15% ahead of schedule in average prior to the MCO. Management noted that post-MCO, construction jobs will need to increase their work shifts to clear backlogged work due to the MCO. We believe CBHB’s construction division will remain profitable in FY20– FY21 with a strong outstanding order book of RM1.24bil (Exhibit 1). Meanwhile, the engineering division has secured some small projects during the MCO. Although small in amount, the revenue will be able to cover some of CBHB’s costs during the MCO.

• CBHB manages the 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 an annual concession income of RM43.5mil (until January 2034). Management indicated that there has been no disruption of income from the concession despite the MCO.

• For the property development division, CBHB is planning a mixed commercial development, namely Latitud8, a JV project with Prasarana Malaysia. Building on top of the Dang Wangi LRT station, the project has a GDV of about RM1.1bil and is scheduled for launching by end of 2020. CBHB is also planning another mixed development in Kelana Jaya, comprising retail units, serviced residential suites and offices. The project has a GDV of about RM1.0bil and is targeted to be launched in 2021.

• We made no changes to our FY20–FY22 earnings forecasts at this juncture. To recap, we have cut our FY20–FY21 earnings by 6.8% respectively in our previous sector report dated 9 April 2020 to reflect the impact of the MCO and its spillover effects to the economy which may result in lower revenue recognition.

• We believe the CBHB’s medium-term outlook is positive, anchored by several construction wins in the past few months while the upcoming launches will be among its major earnings contributors beyond FY21. CBHB also has stable income from the concession arrangement. Moreover, we believe the value of its investment properties deserves more attention.

• Our fair value is unchanged at RM1.76 per share (exhibit 2) implying forward PERs of 15.5x, 14.2x and 10.6x for FY20, FY21 and FY22 respectively. The stock is currently trading at an undemanding forward PER of 4.0x–5.8x for FY20–FY22. This offers a potential upside of more than 100% and a dividend yield of 5.3%. Maintain BUY.

Source: AmInvest Research - 15 Apr 2020