A few days ago, I received a msg in one of the many group chats that I am in, forwarding a WhatsApp writeup on Crest Builder. This writeup was written by a Mr Lim (from RHB's Equity side) - who apparently met up with Mr Eric the same week. Here it goes...

 

On the backdrop of Malaysia embarking high rise development along LRT lines in the beginning of the decade, many eyes were locked on Crest Builder. The company was awarded for a redevelopment project to build a superstructure on top of Dang Wangi LRT station (GDV: RM1.3bil) in 2012; and a Prasarana JV development project of Kelana Jaya LRT station (GDV: RM1bil) in 2013. The story stopped there since, no job was carried out...

 

Unlike developed markets like SG and HK, Malaysia's land law had minimal experience dealing with strata land title, especially the ones where commercial blocks are being built directly on top of public amenities. Apparently according to the law, once Crest's both projects were completed, the LRT stations are obligated to pay maintenance fee to the building, which is not a right thing to do. This issue was debated in the parliament for years and Crest finally cleared the land title issue for the Dang Wangi project, which commenced superstructure works in 2017 and target to complete the project by end 2022. Kelana Jaya project is in the midst of rezoning the land where Crest is hopeful to get clearance by Nov 2019 and finally get launched in 2021. 

 

The other property project slated to launch is the Elevat8@ Jalan Ampang (GDV: RM1.3bil). The project is halted temporarily as it is required to surrender 0.9acre (total 4.8acre) to make way for Duke 3 Highway construction. Nonetheless, this should not affect the launch date in 2020. 

 

In terms of construction order book, Crest is burning RM1bil worth in the next 18 months, concentrated mostly in the next 12 months ahead. GPM is guided to be in the range of 7-10%. Management is confident to secure another RM500mil worth of jobs in the next 3 months, all high rise related projects. As a construction player, Crest is pre-qualified for ECRL to build train stations. Each station costs between RM80-150mil and details on how the jobs being packaged is still unknown. 

 

Rental from property investment forms an IMPORTANT buffer during bad times as the company continue to hunt for new construction and property development works. It collects RM70mil worth of rent annually.

 

 

All in, Crest is trading at an undemanding valuation of <5x forward PE and an estimated dividend yield of 6% (assuming NP of RM45mil FY19e, 25% payout). Cheap but unattractive despite high dividend yield - investors are looking for more spiced up stories in the construction sector and how Crest could benefit from them. Nonetheless, what goes around comes around. The fact that the company is pre-qualified for ECRL station packages could be a prelude to more job wins ahead.

 

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So... no wonder theres been a delay on the mega projects... and no wonder the Jalan Ampang / Jalan Jelatek area is always so congested and so jam; all due to this Duke 3 extension. So RM 500 mil worth of new contracts coming soon? I wonder which project that would be... 

 

 

Read up more on my writeup on this counter.

BEST CONSTRUCTION COUNTER?

BEST CONSTRUCTION COUNTER? - Part 2.