Period     1QFY13/3MFY13

Actual vs. Expectations   CRESBLD’s 1QFY13 core net profit of RM6.5m came in within our expectations, making up 29% of our full year estimate of RM22.1m.

Dividends    No dividends were declared as expected.

Key Results Highlights    QoQ,  core earnings dipped by 13% from RM7.5m to RM6.5m despite a 9% growth in the operating profit of RM15.8m as the group registered a higher effective tax rate of 30.6%, an increase of 23.7ppt mainly due to nondeductable expenses.

  YoY,  the 1Q13 core earnings improved significantly by 31% from RM5.0m to RM6.5m despite a considerable increase in the finance cost (+76%) due to the better operating margin performance recorded by its construction division. Its construction operating margin improved by 6.4ppt to 10.4%.

Outlook    We expect CRESBLD to launch its affordable housing project, Alam Sanjung in Batu Tiga, Shah Alam (priced between RM300k-RM450k) in the near term. Furthermore, construction works on its Dang Wangi project will be rolled-out in 2H13.

Change to Forecasts    No changes to our earnings estimate.

Rating  Maintain OUTPERFORM

A sector driven call due to the exciting construction sector dynamics coupled with CRESBLD’s rail-plus-property play.

Valuation     We have raised our TP to RM1.73 (from RM1.35 previously) based on a narrower holding company discount of 20% to our FD SOP of RM2.16. In line with the property sector upgrade (7/5/13), we have also lowered our property RNAV discount to 40% (vs. 75% previously). However, our valuation is still conservative as the RNAV discount rate is still one of the steepest under our coverage while we have yet to impute for the MRB land deal (refer overleaf for more details). 

Risks    Capital management and sector risks for property (negative policies) and construction (slow awards). Slower than expected property sales.

Escalation of raw material prices.

Source: Kenanga