News  Yesterday, Crest Builder (CRESBLD) has proposed to undertake a placement of up to 10% of its issued and paid-up share capital.

Comments  Based on the illustrative issue price of RM1.42, the propose placement of 10% would raise up to RM29.8m.

 The rationale for the cash call is for the preliminary funding cost of its Dang Wangi development project whereby construction works are currently in progress.

 While we were surprised with the cash-call, we are neutral to positive with the move undertaken by the management as it allows CRESBLD to raise fund without incurring any further interest cost as compared to bank borrowings.

 At the same time, it would also help to lower its net gearing as of 2Q14 of 1.30x significantly to 0.93x based on a maximum scenario assumption whereby all of its 38.3m outstanding warrants and 7.5m ESOS are fully converted.

Outlook  CRESBLD’s outlook remains intact with management’s focus on its bread and butter business, and continuing to secure more quality construction orderbook replenishments with pre-tax margin ranging from 8% to 10%. As for its property development segment, the construction works on its first Transit-Oriented-Development project at Dang Wangi LRT station is progressing well and is slated for launch in early 2015.

Forecast  No changes to our FY14-15E estimates.

Rating Maintain OUTPERFORM

Valuation  We reiterate our OUTPERFORM call on CRESBLD with a lower SoP driven Target Price of RM1.58 (from RM1.62 previously) as we factor in the enlarged share base from the proposed placement, as we believe that its Dang Wangi project (GDV: RM1.0b) would be a major earnings driver.

Risks to Our Call Unable to launch its TOD projects.

 Slower-than-expected progressive billings.

 Lower-than-expected construction orderbook replenishment.

Source: Kenanga