Period  2Q13/1H13

Actual vs. Expectations  Crest Builder Holdings’ (“Cresbld”) 1H13 core net profit of RM13m came in broadly within estimate, making up 59% of our full year estimate of RM22.1m.

Dividends  No dividends declared as expected.

Key Results Highlights  Better 1H13. Cresbld registered a very strong growth on its core earnings, which saw an improvement of 36% from RM9.5m to RM13m despite a softer revenue of RM176.1m (-35%), due to better margins from its construction and property segments with improvements in segmental operating margins to 12% (+8ppt) and 32% (+11ppt), respectively.

 QoQ, Cresbld’s 2Q13 performance was rather flattish whereby it registered core earnings of RM6.5m similar to its 1Q13 performance due to the slower construction division which declined by 41%. However, the decline was offset by better operating margin on both its construction and property divisions, which saw an improvement of 3ppt and 13ppt to 14% and 38%, respectively coupled with a lower effective tax rate of 26% (-5ppt).

   YoY, the strong improvement in its operating margin from its construction division (+10ppt to 14%) which boosted its construction operating profit by 134% to RM12.5 despite softer sales of RM91.7m (-38%). This lifted its 2Q13 core earnings by 41% to RM6.5m.

Outlook  Based on channel check, Cresbld’s affordable property project Alam Sanjung with an estimated GDV of RM300m has received an overwhelming response.

 Next, we will be anticipating the construction works for its Dang Wangi project to take off in upcoming months (4Q13).

Change to Forecasts    No changes to our earnings estimate.

Rating   Maintain OUTPERFORM

Valuation  No changes to our TP of RM1.73 based on 20% discount to FD SOP of RM2.16 (refer overleaf for more details).

Risks  Capital management and sector risks; property (negative policies) and construction (slow contract awards).

 Slower than expected property sales.

 Escalation of raw material prices.

Source: Kenanga