Circulating an article from SJ Securities on Crest Builder.
Corporate Profile
Crest Builder Holdings Berhad (CBHB) is a Malaysia-based company that
has strong footholds in the construction and property development
sectors. The group’s operation can generally be categorised under 4
different segments namely (i) Construction, (ii) Property Development,
(iii) Concession, as well as (iv) Investment Holdings. The group is also
a registered Class A Contractor with the Ministry of Entrepreneurial
Development and a Category G7 with the Construction Industry Development
Board (CIDB).
Abundant orderbook to sustain till 2021
CBHB’s outstanding construction order book stands at around RM1.0 bil,
which is expected to last until mid FY21. It has bagged RM100 mil worth
of construction jobs in 1HFY19, and is targeting to replenish its order
book by another RM500 mil worth of projects in 2HFY19. We are also
expecting faster recognition in progressive billing as most of its
existing projects have completed the initial stage and on track to the
higher stage with higher job claims. Another silver lining will be the
possible jobs winning from East Coast Rail Link (ECRL); the group had
submitted application to pre-qualify for ECRL’s civil work packages
earlier this year and we are guided by its management that it is
targeting to bid for station, depot, and building works.
Billion-dollar property projects in the pipeline
Among its ongoing property projects, we note that Alam Sanjung and The
Greens @ Subang West are fully taken up. With almost all projects being
fully taken up, we expect property division’s earnings to dip in FY19.
However, it has another two new developments namely Latitud8 (GDV: RM1.1
bil) and Elevat8 (GDV: RM1.33 bil) in the pipeline and on track to be
launched in FY20. We expect the two billion-dollar projects to be the
next earnings driver for property development from FY20 onwards.
Recurring income
Moreover, it has property investments in 2 corporate towers namely The
Crest and Tierra Crest that could collect rental incomes of about RM16
mil per annum. It also owns a 23-year BuildLease-Maintain-Transfer
concession agreement with the Ministry of Higher Education and
Universiti Teknologi Mara (UiTM) to build and maintain a campus in
Tapah, Perak, enabling it to derive recurring income of around RM43.5
mil annually until Jan 2034.
Financial Overview
CBHB’s 1QFY19 was resilience, with both revenue and net profit grew to
RM163.82 mil (+31.80% Y-o-Y) and (+31.33% Y-o-Y) on higher contribution
from both construction and property segments. Nevertheless, with lower
contribution from property development segment, we expect CBHB’s revenue
to slow down in FY19. Subsequently, we also anticipate lower net
earnings as we forecast a higher revenue contribution from the
construction segment which typically commands lower margins of around
7%-12%.
Meanwhile, CBHB is somewhat heavily leveraged with a net gearing ratio
of 0.72x. Dividend wise, despite not having a dividend policy, it has
been distributing at least 4.0 sen dividend during FY1518. It paid out
4.5 sen dividend for FY18, translating to a 4.37% dividend yield.
Valuations
Moving forward, we expect CBHB to continue its growth momentum
supported by abundant orderbook and exciting launches of property
projects. Despite recorded stellar performance over the years, CBHB
remains undervalued and unnoticed by investors as market’s interests
hava been diverted into construction companies with relatively greater
involvement in mega-projects (ECRL, LRT, etc.). On the other hand,
prolonged deferment of property projects could be another factor causing
investors’ avoidance. In light of the earnings visibility, we value
CBHB at RM1.62, based on SoP (Sum of Parts) valuation.
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