News  Crest Builder Holdings (CBH), via its 51% subsidiary Landasan Bayu S/B (LB), has received a Letter of Intent (LOI) from Lembaga Getah Malaysia (MRB) for a proposed joint venture development of the MRB site (4.8ac), which is located at the intersection of Jln Ampang and Jln Jelatek. LB is a 51:49 JV between CBH and its partner, Tindakan Juara S/B. 

Comments  The proposed JV involves LB as the developer while MRB is the land owner. MRB will get RM299.9m which  will  be  settled  by  a  combination  of  cash  and completed units. While the mix is not finalised, we reckon the structure is similar to the Dang Wangi redevelopment project (60% paid in kind, 40% in cash), where the cash portion will likely be paid progressively over the project life. The land to GDV ratio is slightly lower at 17% vs. Dang Wangi's 21%, meaning margins should be better, if not similar to Dang Wangi's 20% pretax margin. We also believe that the group will undertake the construction of the project, implying a two-prong revenue streams. 

It will be a mixed development project with GDV of RM1.33b (refer overleaf for details). Based on the guided GFA of 1.65m sf and assuming utilisation rate of 70%, we derive an ASP of RM1150psf. We understand the project spans 5-6 years and will start works in late 2013 (launch likelier in 2014), so the future pricing appears to be fair as neighbouring MSuites was launched at ASP of RM1000psf last year. 

We are overall positive on the project as the group is moving towards catalytic property development projects, which will rerate the stock from a contractor to a developer. 

Outlook Expect a firm agreement to be inked in the next few months. Until then, we will not factor the project into our estimates (refer overleaf for explanation and potential RNAV impact).  

Forecast No changes to our FY12-13E estimates pending a firm agreement. Either way, earnings contributions will only be significant towards end FY14E. 

Rating Maintain OUTPERFORM

CBH is at its inflection point with rerating catalysts as it moves from its traditional construction business into the property development scene while riding on the ETP play with Dang Wangi and MRB. 

Valuation  Maintain TP of RM1.49 based on a 10% discount to our FD SoP of RM1.67, inclusive of 55% discount on the property segment.

Risks Capital management risks  as well as property and construction sector risks including negative policies and slow contract awards.