Period  3Q13 / 9M13

Actual vs. Expectations  Crest Builder Holdings’ (CRESBLD) 9M13 core net profit of RM18.7m came in above our estimate but within consensus, making up 85% and 79% of our and consensus full year estimates, respectively. The positive variance when compared to our estimates was due mainly to better operating margin recorded by its construction division.

Dividends  No dividend was declared as expected.

Key Results Highlights  9M13 exceeds expectations, CRESBLD continues to register very strong growth of for its 9M13 results whereby its core earnings improved by 38% from RM13.5m to RM18.7m. The strong earnings growth was well supported by both of its construction and property division. Its construction and property segment saw an improvement in operating margin to 12.9% (+8.5ppt) and 31.5% (+11.9ppt), respectively as it was driven by better margin projects, i.e. Verticas and Alam Sanjung.

 QoQ, its 3Q13 core earnings was down by 12% from RM6.5m to RM5.7m. The slower performance was mainly due to a smaller contribution from its construction division, which only registered an operating profit of RM11.6m (-6.8%), underpinned by slower sales, which declined 21% coupled with a higher effective tax rate of 34.1% (+8.1ppt).

 YoY, CRESBLD’s core earnings jumped 45% to RM5.7m underpinned by the improvements in operating margin for both of its construction and property division, which saw an increase of 12.2ppt and 14.2ppt, respectively. As a result, its construction and property division’s operating profit saw a major improvement chalking RM11.6m (+57.1%) and RM5.8m (+166.2%), respectively.

Outlook  As mentioned in our previous report, CRESBLD’s affordable property project Alam Sanjung received an overwhelming response registering c.RM142m sales to date. However, while we are positive with the sales of its affordable housing project, we are still anticipating the construction works for its Dang Wangi project to take off in the upcoming month which could be a re-rating catalyst for CRESBLD.

Change to Forecasts  We tweaked our FY13E and 14E earnings higher by 6.6% and 2.4% to RM23.5 and RM38.6m, respectively as we fine tune our margin assumptions for its construction division.

Rating   Maintain OUTPERFORM

Valuation  Due to the immaterial changes to our FY14E earnings, there are no changes to our TP of RM1.73 based on 20% discount to FD SoP of RM2.16 (refer overleaf for more details).  

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

 Slower than expected property sales.

 Escalation of raw material prices. 

Source: Kenanga