News  Yesterday, Crest Builder (CRESBLD) was awarded a contract by UDA Holdings Bhd (UDA) for the construction of the super-structure for a 30-storey serviced apartment with one level podium and eight levels of car parks for a total consideration of RM198m spanning over 30 months.

Comments  We were positively surprised with this contract award from UDA amounting to RM198m, which far exceeded our conservative external orderbook replenishments of RM100m for FY15, but it was within management’s target of RM500m. To recap, this contract from UDA will be CRESBLD’s first and single largest orderbook replenishment vis-à-vis its total orderbook replenishment of c.RM150m in FY14.

 The RM198m construction award would further give its outstanding orderbook a boost to RM248m (from RM50m), which would provide the group at least another 2 – 2.5 years of earnings visibility.

Outlook  The orderbook replenishment of RM198m has proven that our initial assumptions were overly conservative. This project win, coupled with increasing jobs newsflow in the construction sector, has renewed our confidence that there will be more contract flows. Management is confident of achieving their replenishment target of RM500m this year.

Forecast  Given the renewed confidence in CRESBLD’s ability to replenish its construction orderbook, we are raising our full-year assumption to RM450m from RM100m previously. Subsequently, we also raised our FY15- 16E earnings by 8-19% after factoring in the higher orderbook replenishment.

Rating Maintain MARKET PERFORM

Valuation  Following the upward revision in earnings, we are raising our Target Price marginally to RM1.30 from RM1.29 based on SoP. Our SoP valuation basis is extremely conservative (refer overleaf) as we assume a steep 65% discount for its asset RNAV (vs sector average of 44%) while only applying 7x FY15E PER on construction (vs. peers 8x-9x) and assuming a steep 30% holding company discount. While its FY15E PER of 12.9x might look a bit stretched at this juncture compared to small/mid cap contractors or developers, we strongly believe that the great earnings potential from their rail-plus projects could help limit further downside risks. Hence, we maintain our MP call on the stock.

Risks to Our Call  Weaker-than-expected property sales and construction orderbook replenishment. Higher-thanexpected sales and administrative costs. Negative real estate policies. Tighter lending environments. 

Source: Kenanga