Investment Highlights

• We maintain BUY on Crest Builder Holdings (CBHB) with an unchanged fair value (FV) of RM1.76 based on SOP valuation (Exhibit 3). We cut our FY20 net earnings forecast by 80% to reflect the timing of recognition. We make no changes to our FY21–FY22 numbers. We keep our FV as the real value of CBHB is held in its investment properties which contribute 58% of the SOP valuation.
• CBHB posted a 9MFY20 net loss of RM15.3mil. Excluding exceptional items of RM6.9mil which were provided for in 2QFY20, CBHB’s recorded a 9MFY20 core net loss of RM8.4mil. 9MFY20 revenue and EBIT dived 47.6% and 74.6% to RM195.1mil and RM13.6mil respectively mainly due to slower recognition as a result of the movement control order (MCO) in 2QFY20. With a lower revenue, net profit was dragged by fixed costs such as finance costs (RM24.5mil) and admin expenses (RM22.4mil).
• The construction segment’s posted a RM5.3mil core operating loss vs. a profit of RM2.3mil YoY. Meanwhile, concession and investment holding’s operating profits were flattish at RM27.5mil and RM7mil respectively. The property development division recorded a minimal RM0.7mil operating profit as all projects have been completed, hence there was minimal revenue recognition.
• Management guided earnings will rebound in 2QFY21 with higher recognition from construction projects such as South Brooks, Capri Hotel, Toyoma Convention Centre and Rumah Selangorku. Meanwhile, projects at Techvance Hotel, Glomac Plaza and 99 Residences are still in early stages, hence we expect minimal recognition in the near term. We cut our FY20 net earnings forecast by 80% to reflect the loss reported in 9MFY20 in while keeping our FY21–FY22 numbers.
• 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 has acquired a piece of 6.54-acre land 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 1HFY21.
• We believe the CBHB’s long-term outlook is positive, anchored by a robust outstanding order book of RM1.1bil 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. Maintain BUY.

Source: AmInvest Research - 26 Nov 2020