Period  1Q14

Actual vs. Expectations Crest Builder Holdings (CRESBLD)’s 1Q14 core net profit of RM900k came in below our expectations at only 3% of our fullyear core earnings estimate of RM30.9m.

 The lower-than-expected earnings is mainly due to higher-than expected construction costs, timing difference on the progressive billings on its property development projects.

 However, management indicated that 2H14 would be stronger as it would record better progressive billings from its property development division coupled with better contribution from UniTapah.

Dividends  No dividend was declared as expected.

Key Results Highlights YoY, CRESBLD only registered a core net profit of RM900k versus a loss of RM8.2m in 1Q13 despite 40% decrease in revenue from RM80.5m to RM48.6m. The major driver of the improvement was due to the exponential growth recorded in its property development division, which saw 530% improvement on its operating profit to RM9.4m underpinned by 371% increase in revenue to RM27.9m as a result of better sales of its residential development project i.e. Alam Sanjung, Avenue Crest.

 QoQ, CRESBLD recovered from its 4Q13 core net loss of RM1.4m by registering a core net profit of RM900k in 1Q14 despite the decrease of 17% in revenue driven by the improvements in EBITDA margins, which increased by 6.4ppt to 30.4%. The major contributor to the improvement in margins was due to the higher contribution from its property division, which currently makes up 57% of its revenue.

Outlook  CRESBLD has an outstanding construction orderbook of RM80m coupled with unbilled property sales of RM130m with at least one year of earnings visibility.

 Its first Transit Oriented Development (TOD) project namely The Bank @ Dang Wangi with an estimated GDV of RM1.4b would likely to be launched by year-end as the strengthening works on its substructure have already begun.

Change to Forecasts  We reduced our FY14-15E earnings estimates by 25% and 17% to RM23.2m and RM26.1m, respectively; as we reduce our orderbook replenishment assumption by half from RM300m to RM150m, given that there have been minimal news-flow from the construction sector recently as we move into 2H14.

Rating Maintain OUTPERFORM

 We continue to maintain OP on the stock given its position in the affordable housing market coupled with its TOD play. However, we would look to review our rating with downward bias should they fail to launch any of their TOD projects by year-end.

Valuation  In view of slower construction orderbook replenishment and progressive billings, we reduced our SoP Target Price of RM1.73 by 9% to RM1.62 as we downgraded its construction PER from 8x to 7x and also widen the discount on its property RNAV from 40% to 50%, which is inline with other small-to-mid cap developers. *Kindly refer overleaf for more details.

Risks  Unable to launch its TOD projects.

 Slower-than-expected progressive billings.

 Lower-than-expected construction orderbook replenishment.

Source: Kenanga