Period  3Q14/9M14

Actual vs. Expectations Crest Builder Holdings (CRESBLD) registered 9M14 core earnings of RM7.4m that came below our expectations as it only makes up 32% of our full-year core earnings estimate mainly to slower-than-forecasted billings over our overly optimistic sales assumptions for its Shah Alam project (i.e. Avenue Crest) and timing differences on the recognition of its outstanding construction orderbook.

Dividends  No dividend was declared as expected.

Key Results Highlights YoY, CRESBLD’s 9M14 core earnings saw a decline of 84% to RM7.4m on the back of the decrease in revenue (-21%). The decline in revenue was due to lower contribution from its construction division (-50%) given that CRESBLD has minimal external construction jobs at hand in FY14. Apart from that, its investment division operating also saw a sharp decrease of 51% to RM8.5m due to higher maintenance cost for investment properties.

 QoQ, 3Q14 core earnings of RM2.2m declined sharply by 50% underpinned by a 13% decrease in revenue and compressions in EBITDA margin (-7.3ppt) to 37.6%. Its property division which saw a 31% decline in property revenue was the main drag for the decline on revenue while the compression in EBITDA margins was due to higher maintenance cost for its investment properties and also slower progressive billings of its property development projects.

Outlook  While its 9M14 performance might be a dampener, we still believe that CRESBLD’s outlook remains intact with management’s focus on its bread and butter construction business whereby management has managed to secure c.RM150.0m worth of external orderbook replenishments and targeting to replenish RM300.0m worth of jobs in FY15.

 That aside, the construction works for its Dang Wangi project (GDV: RM1.0b) is currently underway and management is looking to launch the project by the end of 1H15, which we believe would be an earnings catalyst for CRESBLD in the near future.

Change to Forecasts We slashed our FY14-15E earnings by 51%-31% to RM11.4m-RM17.9m, respectively, as we factor in slower progressive billings on its property development projects given the weak sentiment in the market and also a slower recognition of its outstanding orderbook.

Rating Maintain OUTPERFORM

Valuation  While CRESBLD’s FY14 earnings might have seen some disappointments, we are still reiterating our OUTPERFORM call on CRESBLD but with a lower SoP driven Target Price of RM1.52 (from RM1.58 previously) as we widen our property RNAV discount to 60% (previously 50%), as we believe its earnings will improve significantly in FY15 underpinned by its outstanding orderbook of RM150.0m and its unbilled sales of c.RM100m that would last them for another year and also banking on its Transit-Oriented-Development (TOD) project i.e. Dang Wangi to begin contribution in 2H15 as management has already got a D.O. approval for the project.

Risks to Our Call  Unable to launch its TOD projects.

 Slower-than-expected progressive billings.

 Lower-than-expected construction orderbook replenishment.

Source: Kenanga