Crest Builder Holdings Bhd
(March 19, RM1.22)
Maintain outperform with higher target price of RM1.30 from RM1.29 previously. We were positively surprised with the RM198 million contract award from UDA Holdings Bhd, which far exceeded our conservative external order book replenishment of RM100 million for financial year 2015 (FY15), but it was within management’s target of RM500 million. 

To recap, this contract from UDA will be Crest Builder’s first and single largest order book replenishment vis-à-vis its total order book replenishment of RM150 million in FY14.

The RM198 million construction award will give its outstanding order book a boost to RM248 million from RM50 million, which would provide the group at least another two to two and a half years of earnings visibility.

The order book replenishment of RM198 million has proven that our initial assumptions were overly conservative. This project win, coupled with increasing job news flow in the construction sector, has renewed our confidence that there will be more contract flows. Management is confident of achieving its replenishment target of RM500 million this year.

Given the renewed confidence in Crest Builder’s ability to replenish its construction order book, we are raising our full-year assumption to RM450 million from RM100 million previously. Subsequently, we also raise our FY15 and FY16 earnings by 8% to 19% after factoring in the higher order book replenishment.

While its FY15 price-earnings ratio of 12.9 times might look a bit stretched at this juncture, compared with small- or mid-cap contractors or developers, we strongly believe that the great earnings potential from Crest Builder’s rail-plus projects could help limit further downside risks. 

Risks to our call include weaker-than-expected property sales and construction order book replenishment, higher-than-expected sales and administrative costs. 

The negatives are real estate policies and tighter lending environments. — Kenanga IB Research, March 19

This article first appeared in The Edge Financial Daily, on March 20, 2015.