Investment Highlights

• We maintain BUY on Crest Builder Holdings (CBHB) with a lower fair value (FV) of RM1.56 (from RM1.76) based on SOP valuation (Exhibit 3). We cut our FY21–22 net earnings forecast by 13% and 7% respectively to reflect the timing of recognition. We introduce FY23 net profit forecast at RM27.1mil. 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 FY20 core net loss of RM22.6mil. FY20 revenue and core EBITDA dived 38% and 88% to RM290mil and RM9mil respectively mainly due to slower recognition as a result of the movement control order (MCO). With a lower revenue, net profit was dragged by fixed costs such as admin expenses. We are cautious of its high net gearing level of 1.07x. We understand that its RM334mil sukuk murabahah are used to finance the concession agreement. Excluding the concession borrowings, CBHB’s net gearing stands at 0.26x.

• The construction segment’s posted a RM40mil operating loss vs. a profit of RM3.7mil YoY. Meanwhile, concession operating profits were flattish at RM36mil. The property development division recorded a loss of RM16.7mil as all projects have been completed, hence there was minimal revenue recognition.

• Management guided earnings will rebound in 2HFY21 with higher recognition from construction projects such as Capri Hotel, Toyoma Convention Centre, Techvanance Hotel, Plaza KJ Residenc and 99 Residences. The company is targeting to replenish its order book by RM500–600mil for FY21.

• 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 2H2021.

• We believe the CBHB’s long-term outlook is positive, anchored by a robust outstanding order book of RM1.0bil 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, the real value of CBHB is held in its investment properties which contribute more than 50% of the SOP valuation. Maintain BUY.

Source: AmInvest Research - 1 Mar 2021