Investment Highlights

• We maintain BUY on Crest Builder Holdings (CBHB) and fair value (FV) of RM1.76 based on SOP valuation (Exhibit 3). We cut our FY20 net earnings forecast by 17% to reflect the timing of recognition. We make no changes to our FY21–FY22 numbers. Our FV remains as the real value of CBHB is held in its investment properties which contribute 58% of the SOP valuation.

• CBHB registered a 1HFY20 net loss of RM15.0mil. Excluding the exceptional items amounting to RM6.9mil, CBHB’s 1HFY20 core net loss came in at RM8.1mil. 1HFY20 revenue and EBIT fell by 58.8% and 74.5% to RM118.1mil and RM11.2mil respectively mainly due to slower recognition as a result of the movement control order (MCO) and Covid-19 pandemic. With a lower revenue, net profit was dragged by fixed costs such as finance costs (RM16.5mil) and admin expenses (RM17.4mil).

• The construction segment’s posted an RM8.1mil operating loss vs. a profit of RM14.6mil YoY. Meanwhile, concession and investment holding’s operating profits are flattish at RM18.4mil and RM5.41mil respectively. The property development division registered a RM1.8mil operating loss as all its projects have been completed, hence there was minimal revenue recognition.

• Management guided earnings will rebound in 2HFY20 with higher recognition from construction projects. Nonetheless, we cut our FY20 net earnings forecast by 17% to reflect the loss reported in 2QFY20 in while keeping our FY21–FY22 numbers. At present, construction jobs are picking up following the recovery movement control order (RMCO).

• 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. With a GDV of about RM1.0bil, it is targeted to be launched in 2021. On top of that, CBHB acquired a piece of land measuring 6.54 acres in Bukit Tinggi, Klang in December 2019 for RM55.0mil. It plans to build residential apartments worth an estimated RM450mil in GDV with its launch scheduled for 1QFY21.

• 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.

• We believe stock is undervalued, currently trading at an undemanding forward PER of 4.6x–12.4x for FY20–FY22. This offers a potential upside of more than 100% and a dividend yield of 4.8%. Maintain BUY

Source: AmInvest Research - 27 Aug 2020