25 November 2007

Propelled by projects.

Yesterday was the 1st time I appeared in the papers.

I like the tagline in the article that was written in The Star BizWeek yesterday. Propelled by Projects is a catchy line - in fact, it reflects how I personally want the company to be - at a much higher level. How do I want to achieve this? We would need a momentum push, in order to propel forward and upwards.

Maybe I should just leave the words to the papers.

Crest Builder sees better returns from property sector

FOR the next three to four years, the Crest Builder group will be propelled forward by a steady business stream with a marked increase in profits from better margins as a result of its property projects in the Klang Valley.

Crest Builder Holdings Bhd is an investment holding company. Through its subsidiaries, it has three core businesses – construction, mechanical and electrical arm and property development, each leveraging on the other. The company started out predominantly as a construction company under Yong Soon Chow, 54, currently managing director of the holding company and Crest Builder Sdn Bhd.

In the early part of this decade, it went into property development with maiden project 3 Two Square, which was completed this year.

Currently 92% sold, getting that 5.5 acres was a blessing. That location is popular because it is in a central position in Petaling Jaya. Located in Section 19, it borders Section 14 and is within walking distance of Section 13. That project, with a land cost of US$8mil (RM32mil), marks its foray into the property development business.

Crest Builder director (business development) Eric S.M. Yong says 3 Two Square is the first of several projects in the pipeline to showcase the capabilities of the family business.

“My father concentrated on construction work. With the entry of the second generation, we brought in new ideas and moved into property development.”

Yong says margins from purely construction work are between 12% and 15%. With property development, it can be from 20% to 30%. Added together, it is about 40%, says Yong.

3 Two Square comprises a tower office block which they will be retaining for annual rental income, 200 office suites and 40 units of ground floor shops which they have sold by strata. The total net lettable space is about 740,000 sq ft, of which 140,000 sq ft is from the tower block.

They will be headquartered in the penthouse and have a recurring rental income of RM6mil from that tower block at RM3.50 per sq ft. This income will only be factored in next year’s accounts. It will also derive a recurring income from its 1,300 car park bays, estimated to contribute about RM1mil annually.

“My father does not believe in buying land to keep. But he does believe in buying when the price is reasonable. Tops was disposing of its assets then,” says Yong.

The second piece of land, 32 acres in Batu 3, Shah Alam, was purchased in mid-2004 from Danaharta for RM22mil. They have sub-divided that into five phases. The first two phases are medium-cost apartments which they have completed and sold to Syarikat Perumahan Negara Bhd for RM147mil in March this year. The bulk of this will only be factored in the 2008 financial year figures.

The third phase, also apartments, is still on the drawing board. This will have a gross development value (GDV) of RM80mil. Phase four comprises shops and an office block (GDV: RM120mil) while the final phase will involve a GDV of RM36mil.

Yong says the main income contributors will be a retail and office project in SS6/3, Kelana Jaya with a GDV of RM120mil. That comprises three floors of retail and a further 15 to 17 levels of offices suites connected in the centre by the lift core on 1.8 acres. They plan to sell this en bloc. It will have a floor plate of about 8,000 sq ft for each block.

“Multinational companies tend to go for the larger floor size. That office space will be unlike the smaller office suites at 3 Two Square,” he says. Other office blocks in that area include the Kelana Centre Point complex by Glomac Bhd and Kelana Park View.

If they succeed in selling this Kelana Jaya development en bloc, the company will be able to see income coming in as early as late 2008 or early 2009. Construction is expected to begin in the first quarter of next year.

Besides venturing into property development, the company has its focus on diversification. Not contented with medium-cost apartments, office blocks and commercial retail the likes of 3 Two Square, it also has a Mont’Kiara condominium project on the cards. Still on the drawing board, this will have a GDV of RM150mil. It is sited on Jalan Kiara 5. The minimum built-up of its units is 2,000 sq ft.

It is going into condominium project in that location to get the margins. Niche lifestyle projects command a better margin than bread-and-butter housing. Whether they will be able to deliver the quality is another question. Incidentally, Crest was the main contractor for Wing Tai Asia’s The Meritz and The Residences at Taman Tun Dr Ismail.

The Meritz is located off Jalan Mayang across from Suria KLCC. The company has done work for Gamuda Land and DRB-HICOM Bhd.

Says Yong: “We have the exposure. We are going for diversity because we do not want to put all our eggs in one basket. We want to leverage on our strong construction base to strengthen our financial figures.”

About 30% of its jobs are government related. Besides the projects mentioned above, it is also looking at a few joint ventures with landowners in the Klang Valley.

“We are selective about locations. We only go for established ones,” says Yong. Projects from the Ninth Malaysia Plan will also add to its income stream.

Although the market has moved quite a bit the past year, the stock has not really moved. A report from Kim Eng research says Crest remains one of the cheapest construction-cum-property plays. It is trading at four to five times its financial year 2007 (FY07) price earnings ratio (PER). A re-rating to six times of FY07 will translate to a target price of RM1.50. It closed at RM1.17 on Wednesday.

The Star - BizWeek 24/11/2007


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