*Be warned! This will be a very long post*

Mr Eric Yong, the Group MD of CREST BUILDER has accepted my FRIEND REQUEST!!! FINALLY!!!

I first blogged on this counter about 4 months ago - honestly, this Crest Builder and 8591 name always pop up by the various Facebook and Telegram groups that I am in. In fact, I did so much research on them that got me rather interested in this counter and made me invest a bit in here too... Anyways, the information and news articles found online and on the website (not so detailed...), plus all the announcements etc etc... not really enough to write a comprehensive post. 

I wrote again a few days after the 1st post - hoping to get their Group MD Eric Yong's attention a bit - and after a few months of pursuing, he has finally ACCEPTED MY FRIEND REQUEST!!! Mr Eric's Facebook page is quite interesting - he posts many of his past and present projects' photos - like providing an update to everyone. 

Here's a picture of Mr Eric Yong, the Group Managing Director of Crest Builder Holdings Berhad (from The Star).

So, anyways, I decided to come up with a little questionnaire for Mr Eric, and hope that he can give me some insights/responses... The pictures shown below are from some Google searches online.

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(from left - Yong Tiok Keng, Eric and Teh Hock Hua.)

Mr Eric, I wrote about the Management a bit - Crest Builder was founded by your late father, Mr Yong Soon Chow. Your mum Madam Koh is an ED on the Board, together with sister Tiok Keng. Younger sister Tiok Nee is a Uni of Melbourne graduate and is the head of Construction Solutions and Property Management. CEO Teh Hock Hua is a UM 1st Class graduate and been with Crest Builder for over 20 years. M&E led by Ir Dr Siew Woh Hon; Property led by Mr Sze To Paul Khay. Chairman still Tengku Dato Sulaiman. Mr Lim Boon Teng, a newer Independent Director on the board. 

Tell me or elaborate a bit, if you may on these names. 

My mother, Koh Hua Lan is the founder of the Group together with my late father. 

My sisters, Tiok Keng and Tiok Nee, graduated from LSE and University of Melbourne respectively. TK handles the Finance side, whilst Tiok Nee handles the Property Management and Construction Solutions side, basically as my understudy. Mr Teh is the CEO of the Construction division, and was in the Group before I even joined. He trained directly with my late father, and had been a long target and earmarked as the construction division lead for many years. Ir Dr Lawrence Siew is the head of M&E, and he has been instrumental in beefing up the M&E Division where we start securing more M&E related projects in recent times. Mr Szeto is the Property head, and he comes with an abundance of experiences from various property PLCs. 

Our chairman Tengku Dato Sulaiman has been an old friend of my late father since the mid 1980s; he is an Uncle to the current Sultan of Selangor, and he has been Chairman of the Group since our listing. Mr Lim Boon Teng (Jack) is our new independent director, and comes from an auditor background. 

Information on each of the directors can be found in our latest Annual Report. Do go through and let me know if you have any further query.

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The Verticas Residensi - it does look huge in this picture. 

You mentioned that Crest Builder’s Construction Division will be the main contributor for the Group.

Perhaps you can tell us a bit more about some prominent past and current projects. Tell us also about your M&E Division. What is your outlook on project’s gross profit margin?

Ever since the early 1990s, the Group had been very focused on building projects - and back then we did a lot of government buildings such as schools, army camps, colleges and universities, as well as some hospitals. In fact, we have constructed various campuses for TAR College, UTAR, UiTM, UPM, UTM, a couple of KPJ hospitals such as the Damansara Specialist and the Ampang Puteri, and some sophisticated ones such as the KLIA Apron Control Tower and the Langkawi Beach Nourishment and Island formation projects.

Since our listing in 2003, we had embarked on a branding programme, whereby we target projects with higher branding exposure. Looking at our portfolios, we have built over 50 high rise projects, mostly around Klang Valley. Some of the more prominent ones are the award winning Menara Binjai at Jalan Ampang, the tallest in Bukit Ceylon Verticas Residensi, the Setia Sky Residences, the ASCENCIA TTDI, the Northshore Gardens Desa ParkCity, the Menara Worldwide as well as the Twins Damansara. 

Our currently more prominent projects would include the RM 440 mil Quarza Mall and The Ridge Residences at KL East for Sime Darby Property, the RM 328 mil South Brooks luxury condominium in Desa ParkCity as well as a host of other projects. 

As for our M&E Division, it has been on a steady growth path - our M&E division CB Tech (M) Sdn Bhd is led by Dr Lawrence Siew. In the last couple of years, it has managed to strike out as an able profit centre of its own, whereby it managed to secure the specialists' contracts for the ANGGUN JSI project, the Quarza project - and for various external projects too. 

The gross profit margins are between 7-12%, whereby the higher end projects would garner the higher side of this range. M&E contracts would comfortably garner almost 10-15%. 

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The latest photo of South Brooks at Desa ParkCity, as taken from Mr Eric's facebook. 

Crest Builder has an outstanding order book of RM 1+ bil as of latest reports - with large clients such as Sime Darby Property and Desa ParkCity. You have set an annual order book replenishment target of about RM 500 mil per year. Last year, Crest Builder secured RM 600+ mil, and so far this year you have only secured RM 100mil. 

Tell us more about your cliente profiling and order book replenishment targets. 

We have an annual replenishment target of about RM 500-600 mil. So far this year, we have secured about RM 100mil. We have been very careful on the tender processes. With the expected soft markets and credit crunch forecoming, we are very careful to ensure we do not repeat any mistakes of the past. 

If you look at the projects that we are doing right now, they all fall within a few key parameters. 

The Quarza Mall and The Ridge Residences - client is Sime Darby Property, a large and prominent GLC that ensures our payments are always secured. The South Brooks at Desa ParkCity is for a very prominent developer, Perdana ParkCity - and is also a project that has very strong sales right from launch. Projects such as the Capri Hotel at Jalan Imbi, the TechVance Hotel at Lorong P Ramlee as well as the New Ocean World Convention Centre are projects that have already secured financing and not for sale - further signalling the client's strong financing capabilities. In such times, it is very important to have projects with secured funding to ensure cashflow is strong. 

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You said that Crest Builder went for the prequalifications for the ECRL. What are the details of the ECRL jobs that Crest Builder is targeting for?

We have submitted for the Pre Qualifications for the ECRL - and are currently awaiting for the various tender packages available. As a building contractor, we are targetting mostly the building packages within the ECRL, especially the stations, the depots, the storeyard and so on etc. Currently, there is not much information provided yet on this, but we reckon the rollout of the tenders should come by the end of the year. 

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Eric Yong during the launch of The Greens (Residensi Hijauan) in 2017 - the project has since been completed this year.

For the 2nd Quarter under review, the Group's revenue decreased from RM 151m to RM 123 mil while the PAT decreased from RM 17.9mil to RM 8.3mil respectively as compared to the corresponding second quarter of the preceding year. 

The property development division’s revenue and profit before tax amounted to RM13.8 million and RM4.0 million as compared to the corresponding second quarter of the preceding year of RM57.2 million and RM12.9 million respectively. The decrease in revenue and profit before tax were mainly due to completion of Batu Tiga Phase 2 (Residensi Hijauan) project in the first quarter of year 2019.

What is your plans for Crest Builder's Property Division, given that the last of the Batu 3 projects are completed now?

For the Property Division, going ahead we would split the Property Division into two separate categories - the regular projects, vs the mega projects. (I shall elaborate more on the mega projects in your next question).

Since 2003, we have embarked on a rather slow path for our property development. I do admit that it has been rather cyclical - because we are naturally a contractor, and we do not do much landbanking - hence the project continuity sometimes have some road blocks. However, we view this very positively - as our holding costs are low (because no land banking), and we continue to push for our current business model of pocket land developments in matured areas for a quicker turnaround time. 

Now that the Batu 3 Shah Alam projects are fully completed, we are on the lookout for new lands within Klang Valley. Bear in mind, the cost of the land at Batu 3 versus the total GDV was less than 4%, and this has been one of the stumbling blocks for our land banking exercises. Perhaps 4% land cost vs GDV is too high of a target to set, and we do set a criteria of up to 12% of GDV for our land targets. 

Currently, we are eyeing a few key plots around Klang Valley - especially at the upcoming developing areas such as Kepong, Rawang, Klang and Kajang. 

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It is results season these last 2 weeks - and in fact, I believe Crest Builder (Q2FY18 EPS7.1 vs Q2FY19 EPS2.5)(-60%) is not the only counter that suffered contraction in figures. A quick check would show that Destini (-91%), Gamuda (-14%), GBGAQRS (-50%), GDB (-32%), MRCB (-68%) and WCT (-52%) all suffered contractions. GADANG even went negative (dropping from EPS 3.53 to -0.51)! 

However, the market reacted rather prematurely to Crest Builder's 2nd Quarter FY2019 results. In fact, the share price had come down from 1.02 last week, to about 0.97 this week. What is your comment on this?

Honestly I have not much comments on this.

I do some small investments myself - and I think many counters are down even though the results are good. The general consensus is that Crest Builder's market cap is not large enough and the liquidity is rather low, hence it does not attract enough funds.  

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An artist impression of Crest Builder's Kelana Jaya LRT Redevelopment project. 

I understand that the mega development projects, such as the Latitud8, Elevat8 and the Kelana Jaya LRT Redevelopment may face further delays. Can you update us on these 3 projects?

The Latitud8 - had been going through some resubmissions to DBKL for some design and layout changes. We are currently negotiating with some block purchasers, and we target to commence construction works very soon whilst the launch is targeted for 2020. Completion is targeted for end 2022 or early 2023. 

The Elevat8 - is facing some land matter issues currently. The land size has been reduced a few times due to compulsory acquisition by DBKL for the road widening of Jalan Ampang and Jalan Jelatek - and more recently, the land is further reduced due to the DUKE3 expansion works. Nonetheless, most of the approvals have been obtained - and we target to launch this in end 2020.

The Kelana Jaya LRT Redevelopment is currently still pending land matters. We hope that the local authorities can gazet this RTPJ plans as soon as possible in order for us to do our DO and BP submissions. We target to launch and commence works in 2021.  

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Crest Builder's Annual Report 2018 cover - featuring The Crest at 3 Two Square. 

I also highlighted that Crest Builder owns some investment properties - the Crest at 3 Two Square and Tierra Crest, in Petaling Jaya. Both properties are considered to be matured properties already, probably due for some upgrading and renovation. According to their Annual Report 2018, the investment holding division reported a revenue of RM15.9 million and I think this is a plus point to the financials. As for Q2 FY2019 - the investment division recorded revenue of RM2.6 million and loss before tax of RM0.4 million as compared to the corresponding second quarter of the preceding year of RM4.0 million and profit before tax of RM1.7 million respectively. The decrease in revenue and the increase in loss before tax were mainly attributable to the decrease in the occupancy rate of certain investment properties.

Crest Builder also owns a concession business - a 23 year UiTM concession. Under this concession, the MOE pays them RM 43.5mil every year and a profit of about RM 10 mil every year. 

Will you be looking at new investment properties to further enhance the recurring income? 

Our business model on investment properties has always been a spinoff from the property development side. If you look at our 1st investment property, The Crest at 3 Two Square - this was the completed property from our maiden development 3 Two Square. The corporate tower that houses the Crest Builder office is basically part of the profits from the development. 

Tierra Crest at Kelana Jaya came as a little surprise because during the development stage, we managed to secure a long term anchor tenant in UNITAR International University - that enables us to keep the building as an investment property. Apart from these, we do keep some of the commercial lots within our Shah Alam developments for recurring income as well. 

Currently, there are no immediate plans to acquire or purchase any new investment properties - it would need to come from an in-house development. However, our very lucrative car park management business has been doing very well - and we would be eyeing some prospects in this segment (car park). 

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Mr Eric Yong, during MBAM's Affiliate Dialogue 2019, with President Mr Foo Chek Lee, the MD of Mitrajaya. (Oriental)

You are currently the Secretary General of Master Builders Association Malaysia – perhaps the largest contractor and builder association in the country. What are the expected outlook for the construction sector for the country this year?

Based on the national newspaper reports, it does seem that the construction sector is recovering. 

However, I personally think that the market is only going to bottom out towards the end of the year or early next year - when the mega projects start rolling out. During our recent MBAM dialogues with various affiliates from different states, it has been mentioned that while the media has been buzzing with plenty of news and so on, the activities on the ground has remained rather quiet and stagnant at the current moment. I reckon it will pick up better towards the end of the year. Nonetheless, the construction sector remains challenging as contractors might have to sacrifice some margins to secure new projects as they compete for a smaller pie in the market.

For the private sector, we noticed a more encouraging response from developers, especially with more tenders being called. 

Looking forward to this year, I am optimistic that Crest Builder will continue to deliver growth, supported by our outstanding order book of approximately RM1 bil as at 30 June 2019.

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If you look at Crest's gearing, it is rather high. It may have been improving a bit recently. Can you comment on this?

If you were to look at just the numbers, yes I do agree it is rather high.

However, I have to explain on this.

In 2014, we launched a Sukuk to refinance the UiTM Tapah project - whereby we raised over RM 500mil in the sukuk. This sukuk, while it is fully ringfenced against the government Availability Charges, it still adds on to the gearing. Further to this, we also have 2 long term loan facilities that are against the 2 investment properties, The Crest and Tierra Crest. 

Removing the investment property loans as well as the sukuk, our net operating gearing ratio stands at approximately 0.32x (RM162 mil / RM517 mil) as at 30 June 2019, which I would say is very healthy. 

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Mr Eric, I read about QLASSIC and Crest Builder's involvement with this. Understand that Crest Builder does a lot of high end and high quality projects. What puts Crest Builder different or stronger than its peers?

The QLASSIC, or Quality Assessment System in Construction, was developed by CIDB to be Malaysia’s Construction Industry Standard (CIS). The primary objective of this CIS is to measure the benchmark of the standards that can be applied by the industry to measure the quality performance of their respective construction projects objectively. Up til 2012, the scoring average is about 65%. The current industry average is between 72-75%, out of 100. Generally, the smaller projects, or landed projects are able to obtain higher scoring, due to a smaller sampling quantity, versus a larger project. The highest QLASSIC score ever achieved was 89%, in 2018 – for a bungalow development.

Crest Builder's QLASSIC experience has been rather good so far - the first project under the QLASSIC scoring was Menara Binjai, KLCC – whereby we achieved 73% back in 2012. The highest QLASSIC achieved by Crest Builder is 84%, in 2018 – for ANGGUN high rise residential development. Anggun is a high rise high end residential project, for UDA Holdings Berhad. Crest Builder achieved a scoring of 81% for The ASCENCIA TTDI, in 2016 – a high end residential project for Naza TTDI Development. The ASCENCIA is one of the most prestigious projects in Taman Tun Dr Ismail, KL – and the selling prices at launch was in excess of RM 1,000 psf. In 2016, Crest Builder achieved a 77% scoring for Alam Sanjung, an in-house development in Shah Alam. Alam Sanjung is a medium cost high rise development consisting of 600 units – launched at about RM 450 psf upwards (per unit quantum is about RM 430,000).

Before the QLASSIC implementation, we had previously achieved a high 74.6% scoring, under the Singapore’s CONQUAS system (which is a much stricter system) for the Northshore Gardens, Desa ParkCity project in 2011.

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Crest Builder has an aggressive share buyback policy. Previously I did wrote about Crest Builder, at one point was amongst the top 3 on share buybacks. Tell us more about this. 

The Group has been repurchasing its shares due to its cheap valuation of the stock, currently trading at a steep discount with a PE of less than 3x with strong earnings visibility. The Group also hopes to portray a sign of confidence to the market despite the challenging outlook of the market. 

I firmly believe that the counter is grossly underpriced. If you look at our latest NTA/NAV of RM 2.99, I believe trading at less than 1/3 of the NTA doesnt do justice. We are definitely worth more than the current share prices and we would continue to pursue share buybacks as and when deemed necessary. Our finances are strong that enables us to continue to do share buybacks, and we hope that the market will start to wake up to our counter. 

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You mentioned during your AGM that the FY19 will not be a record year, but will be close enough to FY18’s figures. Can you update more on this?

Actually, if you were to look at the 2018 announcements and financial reports, we did have a few one-off things that enhanced our figures - including some reversal of impairments as well as the sale of the land at Mont Kiara to UEM Sunrise. 

Personally, I believe that our FY19 may not be as good as FY18, but will be better than FY17 for sure.  

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Crest Builder distributed dividend of 4.50 sen for FY2018 which translate to dividend yield of 4.3%. Crest Builder has consistently pay dividend from 3-5 sen over the past 10 years (total paid dividend of 40.5 sen over past 10 years). Tell us about your dividend policy.

Over the years, we have not established a formal dividend policy - but we do unofficially pay out about 25% of PAT. 

Going ahead, we will establish a formal policy, a minimal of 20% of PAT to be paid out as dividends. 

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There was a comment from @yhkeh5151 on my blog post back in June - worrying about the possibilities of the majority shareholders, the Yong family - offering a Selective Capital Reduction (SCR) with a much lower price than its NTA, like WEIDA, DAIMAN, MAAG etc recent. 

Will you, as the majority shareholder, do this?

When we were listed in 2003 via the RTO of MGR Corporation Berhad - we wanted to have the PLC status because it provides our clientele with an extra confidence - whereby we have stronger financials and cashflow than our unlisted peers. Along the way, I also find that being listed enables us to tap into more methods of funding instead of the conventional banking facilities. 

I know we have been doing some share buybacks - but we will place it out to various funds and institutions once the timing and pricing is right. I believe that instead of doing a SCR, we may instead consider doing some placements or some rights issues to raise some funding when the timing is right. 

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Mr Eric, give me your best reason and tell me why investors should buy 8591.

Simple - strong past, powerful current and secured future. Our early years have been the fundamentals for a strong foundation which enables us to have a very solid order book in the present, and puts us in a very good position to secure more projects and more land in the future. 

So, thats all I have for now, I will write more in the coming future with more insights of the marvellous construction company!

If you all have any questions that you wish to ask Mr Eric Yong, or with regards to Crest Builder Holdings Berhad, do leave your questions in the comments section below and I shall ask him via FB later.