News  Crest Builder Berhad (CRESBLD) announced that it has received a Letter Of Acceptance from Syarikat Prasarana

Negara Berhad (Prasarana) for the proposed joint-venture development of Kelana Jaya LRT station measuring approximately 4.95 acres, of which CRESBLD has agreed and accepted on 20 December 2013. The proposed development is a mixed commercial development which comprises of serviced residential suites and offices with an estimated GDV of RM1.0b.

Comments  We were rather surprised with the announcement as we did not expect CRESBLD to win another Transit Oriented Development (TOD) project from Prasarana as this would its second joint-venture development project with Prasarana. To recap, CRESBLD was the first to bag a TOD project from Prasarana back in April-2012 for the Dang Wangi LRT station with an estimated GDV of RM1.04b whereby construction works is expected to start around the second quarter of 2014.  Prasarana shall be entitled 24.8% (c.RM248m) of the total GDV, including land cost. We deem that the land cost is fair for CRESBLD despite being slightly higher compared to the industry average range of 15%-20%. This is because CRESBLD does not need to fork out any cash upfront for the land acquisition given that Prasarana is the landowner of the project and payment to Prasarana is most likely to be settled progressively or in kind, while the construction works for project is expected to take off in late 2015. Hence, the proposed joint-venture development on Kelana Jaya LRT station would not have any impact to its net gearing level of 1.2x (as of 9M13) at this juncture.

 The project’s GDV of RM1.0b would consist of two 30-storey blocks of condominiums and one 10-storey block of office suites while retail space would be minimal. Assuming a plot ratio of 6x and 75% utilisation rate on its 4.95 acre of land, its GDV of RM1.0b translates to an ASP of RM1030psf, which we believe is still doable in the future given its accessibility and close proximity to Paradigm Mall (free shuttle service from Kelana Jaya LRT station). Based on channel check, WCT’s The Paradigm Residence 1 selling at an ASP of RM1000psf without DIBS scheme had achieved a take up rate of >70%.

 We are positive with the project in the long-term as it would provide better earnings visibility for CRESBLD as we expect the earnings accretion for this project from FY16 onwards.

Outlook  Meanwhile, we are looking forward to the launch of its Dang Wangi project as it has obtained all clearances from the government. Apart from that, we would also expect CRESBLD to secure some construction works ranging between RM50m-RM100m in 2014 to replenish its already diminishing external order book.

Forecast  No change to our earnings estimates.

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) at this juncture as we have yet to factor in the project into our valuation.

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

 Slower than expected property sales.

Source: Kenanga