We met up with Crest Builder Holdings Bhd (CRESBLD) recently and came back feeling reassured. Management has prudently pushed back some of its development projects while remained focused on its bread and butter business i.e. construction and affordable housing development and the commencement of construction works on its first Transit-Oriented-Development (TOD) project namely The Bank @ Jalan Ampang. To recap, its affordable housing project Alam Sanjung was well received with all non-Bumi units taken-up, while the construction works for its maiden TOD project in Dang Wangi has already kicked off. Hence, we are reiterating our OUTPERFORM call with an unchanged Target Price of RM1.62 based on Sum-of-Parts valuation.

Balancing Act. CRESBLD’s external outstanding orderbook remains at RM70.0m giving another year of earnings visibility. Management highlighted that its construction division is still its bread and butter although the property contribution is becoming more prominent in the last few years. While CRESBLD is actively on the lookout for orderbook replenishment, they are focused on jobs with decent pre-tax margins of at least 8%-10%. Given their strict selection criteria in jobs ranging from infrastructure to high-rise building jobs, we are maintaining our orderbook replenishment assumptions of RM150.0m and RM300.0m for FY14 and FY15, respectively.

Developing Steadily. As we understand, management has rescheduled some of its development project timelines which will now be staggered over several years rather than commencing all projects’ construction works concurrently as originally planned. We think this is a prudent move by management as to not overstretch its balance sheet and also allows for better planning/positioning of future projects, particularly given the current challenging property market. Development projects that are in the pipeline consist of: 3 Stones (GDV: RM330.0m) @ Shah Alam, The Bank (GDV: RM1.0b)and The Galleria (GDV: RM1.3b) @ Jalan Ampang and lastly Kelana Jaya LRT Station project (GDV: RM1.0b). We would expect 3 Stones and The Bank to take off in the near-term while The Galleria and Kelana Jaya LRT Station projects are to commence from end-2015 onwards.

3 Stones @ Shah Alam. This would be CRESBLD’s final phase of development in Shah Alam after Alam Sanjung that is catered for the “affordable” segment with an estimated GDV of RM330.0m comprising 2 towers of medium-cost apartments with a total 646 units priced at the range of RM600/sf with an average built-up of 900sf that is expected to be launched by year-end. We believe that 3 Stones would be able to sell well as demand from the affordable segment remains strong.

The Bank @ Jalan Ampang. CRESBLD’s maiden transit-orienteddevelopment (TOD) project with an estimated GDV of RM1.0b has finally commenced. Management indicated that the construction works has started including further strengthening of the existing structure underneath the station. We would expect management to launch the project by the end of 2014 or early 2015, priced between RM1,050 – RM1,250/sf which we deemed as attractively priced for KL City Center’s pricing and the project is targeted at both foreign and local buyers.

Maintain OP with an unchanged TP of RM1.62. While there are no changes to our FY14-15E earnings estimates as we are expecting a stronger 2H14 performance, we reiterate our OUTPERFORM call on CRESBLD for the commencement works on their first TOD joint-venture project with the local transport authority namely The Bank @ Jalan Ampang as we expect this project would be a huge earnings catalyst for CRESBLD. Hence, we maintain OUTPERFORM with an unchanged Target Price of RM1.62 based on Sum-of-Parts (refer overleaf for details). We deem our valuation as conservative as we only factored in The Bank @ Jalan Ampang into our valuation whereby CRESBLD could be valued at RM1.94 based on a blue sky scenario should we factor in all of its TOD projects in which we might look forward to upgrade over the next 6 months should there be more clarity on these projects.

Source: Kenanga