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 3). We cut our FY20 net earnings forecast by 37% to reflect the timing of recognition as a result of the movement control order (MCO) and the Covid-19 outbreak. We make no changes to our FY21–FY22 numbers. Our fair value is unchanged as we rolled our construction earnings to FY21 in the SOP valuation. Moreover, the real value of CBHB is held in its investment properties which contribute 58% of the total SOP valuation.

• CBHB registered a 1QFY net loss of RM0.42mil. 1QFY20 revenue and EBIT fell by 62% and 61% to RM61.8mil and RM10mil respectively mainly due to slower recognition as a result of the MCO and Covid-19 pandemic. PBT plunged 90% to RM1.7mil. With a lower revenue, net profit was dragged by fixed costs such as finance costs (RM8.4mil) and admin expenses (RM5.9mil).

• The construction segment’s EBIT plummeted by 62.6% to RM1.8mil while concession and investment holding’s EBIT increased by 1% and 4.5% to RM9.3mil and RM2.7mil respectively. The property development division registered a loss before interest and tax of RM1mil due to the completion of all its projects, hence there was minimal revenue recognition.

• Management guided for a weak 1H, but earnings will rebound in 2HFY20. Hence, we cut our FY20 net earnings forecast by 37% to reflect the timing of recognition as a result of the MCO and virus outbreak while keeping our FY21–FY22 numbers. At present, construction jobs are picking up following the recovery movement control order (RMCO).

• 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 RM1.2bil and is scheduled for launching by early of 2021. 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 believe the CBHB’s long-term outlook is positive, anchored by a robust outstanding order book of RM1.2bil and upcoming property development launches with a combined GDV of RM2.6bil at strategic locations. 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 3). The stock is currently trading at an undemanding forward PER of 4.4x–10.4x for FY20–FY22. This offers a potential upside of more than 100% and a dividend yield of 4.6%. Maintain BUY.

Source: AmInvest Research - 25 Jun 2020