We attended Crest Builder Holdings (CRESBLD)’s post-results briefing recently and came back with a neutral feeling over its prospects. Nevertheless, there were some positive updates on its development projects. Its affordable housing project (<RM600k per unit) Alam Sanjung has received an overwhelming response whereby its Tower A was fully taken up. As for its joint-venture development projects, the management is expecting construction works for its Dang Wangi project to start in 2H14, while The Galleria @ Jalan Ampang and Kelana Jaya project would only kick-off earliest next year. As such, we lowered our FY14E and FY15E estimates by 23% and 6%, respectively, as we pushed back the contribution from Dang Wangi as we also rescheduled the construction timeline. Maintain OP with an unchanged TP of RM1.73.

Focused on affordable housing. For the year, CRESBLD would still be very focused on its affordable housing projects, whereby they will be launching its Batu Tiga Phase 2 project with an estimated GDV of RM300m comprising units with built up of 900sf onwards priced between RM400-600k which we believe would definitely sell well given its affordable price range. Management also indicated that they are actively looking for landbank with the size of around 20-25 acres within the Greater Klang Valley area as replenishment for continuity purposes, as the Batu Tiga Phase 2 project would be their final development in that area.

Dang Wangi, its first Transit Oriented Development. As we understand from management, the commencement of works had seen subsequent delays; still pending approval of the building plan for Dang Wangi. However, management had reassured us that the long-awaited construction works for Dang Wangi would likely take off in 2H14 post Hari Raya and expected to be launched sometime between end of 2014 and beginning of 2015. The indicative pricing per square feet for Dang Wangi ranges between RM1100-1400psf, and management would be targeting 50% foreign buyers given that its Dang Wangi project pricing would be above the affordable range.

The Galleria & Kelana Jaya next? Management is expecting the construction works for both of these projects to commence in 2015. The indicative price psf for both of these projects would be at the range of RM900psf. Based on surrounding property prices, we believe that both projects would be fairly priced and sales would be well received upon launch. However, based on our conservative assumptions, we have yet to factor both projects into our FY15 earnings as we are expecting these projects to take off late 2015.

Current orderbook at RM110m. Its outstanding orderbook currently stands at RM110m and management is targeting an orderbook replenishment of c.RM500m from external contracts for the year, mainly from building projects. As for infrastructure projects, management is currently looking at potential job awards from the East Coast Economic Region. For the year, we conservatively assumed an external orderbook replenishment of RM300m only given that CRESBLD is highly selective in taking up external construction works.

Gearing level still manageable. We would expect CRESBLD’s net gearing to at least increase to 1.3x as they commence work for the Dang Wangi project in FY14, and it is looking to refinance its debts and a major proportion of it would be ring fenced by its investment properties with positive cash flows. Stripping that off, its net gearing would come down to a comfortable range of 0.5x. Apart from that, management is also looking to sell one of its investment properties (Tierra Crest) should the price is right and this could potentially bring down its net gearing to 0.3x. Hence, we believe that CRESBLD’s net gearing is manageable, inclusive of financing for its Dang Wangi project.

Lowered FY14-15E estimates. We lowered our FY14E and FY15E core net profits by 20% and 12%, respectively, as we further pushed back Dang Wangi’s earnings contribution, as the expected construction works for Dang Wangi is later than expected.

Maintain OP and TP of RM1.73 based on SoP. We are reiterating our OP call on CRESBLD given its transit oriented development joint-ventures with the local transport authority, and we also deem that our fair value of RM1.73 is conservative as we have only factored in its Dang Wangi project. The blue-sky scenario for its fair value could be up to RM2.09, should we factor in its Jalan Ampang and Kelana Jaya projects although subsequently, its net gearing would also be a lot higher.

Source: Kenanga