Crest Builder Holdings - Meets expectations

Period    3Q12 / 9M12

Actual vs. Expectations  9M12 core earnings of RM13.5m is within expectation, making up 79% of our estimates.

Dividends   None as expected. 

Key Results Highlights  QoQ, 3Q12 pretax profit grew 15% to RM4.5m given stable EBITDA margins of 7% and 20% growth in revenue. Construction revenue (main contributors are Menara Binjai, Setia Sky, Verticas and UniTapah) did exceed our initial estimates significantly, but this helped the softer than expected property billings as Avenue Crest (offices) was launched later than expected; the project has achieved 30% take up rate since the launch in 3Q12. 

 YoY, 3Q12 core earnings dropped 40% to RM3.9m. Although revenue and EBITDA margins (7%) were flat, finance cost rose 23% to RM4.8m due to higher borrowings arising from UniTapah and Tierra Crest. Furthermore, effective interest rate was higher at 36% (3Q11: 24%). 

 Ytd-YoY, 9M12 core earnings grew 46% on better revenue from construction (+32% YoY) and property (+9% YoY), as well as, stripping-off last period’s non-cash fair value gains of RM19m. 

Outlook   Dang Wangi project will start in 2H13. We also expect CBH to firm its JV project to develop the Lembaga Getah Malaysia (MRB) site (GDV: RM1.33b). Since UniTapah concession earnings being in FY14E, project financing is expected to be ring-fenced; if so, net gearing without UniTapah will improve to 0.5x from current 0.9x.

CBH is tendering for another RM2.5b contracts, including the Langat 2 water treatment plant.  

Change to Forecasts  No changes to FY12-13E estimates. Remaining construction orderbook is RM1.2b, which is largely driven by Dang Wangi. To date, the group has recorded RM115m sales from Alam Idaman (100% sold) and Avenue Crest (30% sold), which is inline with our estimates.

Rating  Maintain OUTPERFORM

 At current price, investors are getting the property segment and UniTapah concession for ‘free’ based on our TP. The stock is trading at FY12-13E core PER of 7x-6x or near mid-cycle.

Valuation    Maintain TP of RM1.34 based on 10% discount to FD SoP of RM1.49; our SoP uses property RNAV discount of 75% (steepest under coverage).

Risks   Capital management and sector risks; property (negative policies) and construction (slow awards).

Source: Kenanga