Crest Builder Holdings Bhd
(April 15, 71.5 sen)
Maintain buy with an unchanged fair value (FV) of RM1.76: We maintain our “buy” recommendation on Crest Builder Holdings Bhd  with an unchanged FV of RM1.76 based on sum-of-the-parts valuation. We made no changes to our net earnings forecasts for financial years 2020 to 2022 (FY20–FY22).

The construction progress of Crest Builder’s projects was 10% to 15% ahead of schedule in average prior to the movement control order (MCO). Its management noted that post-MCO, construction jobs will need to increase their work shifts to clear backlogged work due to the MCO.

We believe Crest Builder’s construction division will remain profitable in FY20–FY21 with a strong outstanding order book of RM1.24 billion. Meanwhile, the engineering division has secured some small projects during the MCO. Although small in amount, the revenue will be able to cover some of Crest Builder’s costs during the MCO.

Crest Builder manages the concession (51% stake) of the 5,000-student capacity of the UiTM Tapah 2 campus with the ministry of education and Universiti Teknologi Mara (UiTM). UiTM’s Tapah campus receives an annual concession income of RM43.5 million (until January 2034). The management indicated that there has been no disruption of income from the concession despite the MCO.

For the property development division, Crest Builder is planning a mixed commercial project, Latitud8, a joint venture with Prasarana Malaysia Bhd. Building on top of the Dang Wangi light rail transit station, the project has a gross development value (GDV) of about RM1.1 billion and is scheduled for launching by the end of 2020. Crest Builder is also planning another mixed development in Kelana Jaya, comprising retail units, serviced residential suites and offices. The project has a GDV of about RM1 billion and is targeted to be launched in 2021.

We made no changes to our FY20–FY22 earnings forecasts at this juncture. To recap, we have cut our FY20–FY21 earnings by 6.8% respectively in our previous sector report dated April 9, 2020 to reflect the impact of the MCO and its spillover effects on the economy which may result in lower revenue recognition.

We believe Crest Builder’s medium-term outlook is positive, anchored by several construction wins in the past few months while the upcoming launches will be among its major earnings contributors beyond FY21. Crest Builder also has a stable income from the concession arrangement. Moreover, we believe the value of its investment properties deserves more attention.

Our FV is unchanged at RM1.76 implying forward price-earnings ratios (PER) of 15.5 times, 14.2 times and 10.6 times for FY20, FY21 and FY22 respectively. The stock is currently trading at an undemanding forward PER of four times to 5.8 times for FY20–FY22. This offers a potential upside of more than 100% and a dividend yield of 5.3%. — AmInvestment Bank, April 15