Small contract, but a new recurring income for Crest Builder.

Further to the report that came out on The Edge Daily on Friday, The Star did another feature on us. A little glitch on the article title - "Small contract, but a new recurring income for Crest Builder" though - the title actually refers to two separate matters - the small contract being the Menara Wakaf project and the new recurring income being the office rentals.

The article explains it better.

LATE Friday, construction and property player Crest Builder Holdings Bhd gave shareholders a little Christmas surprise. It announced that it has won a contract to build a 34-storey structure, Menara Wakaf along Jalan Perak in Kuala Lumpur.

Awarded by TH Technologies Sdn Bhd, which is a wholly owned subsidiary of Lembaga Tabung Haji, this structure will sit atop a 1.21 acre piece of land, and comes with a contract value of RM97.2mil. The project will commence work in mid 2008 and is expected to be completed within 24 months.

While this contract is not huge in value terms, it does add to Crest Builder's order book which presently stands at a comfortable RM910mil. The new contract provides recurring income from the rental of its office blocks in 3 2 Square; it is estimated that some RM6mil to RM7mil will flow into the bottom line. The amount would make up close to 16% of its FY08 earnings.

Crest religiously maintains an annual replenishment of RM250mil to its order book.

To date, the company has a total unbilled construction order book of RM600mil, which will be recognised over the next two financial years. Hence, earnings over the next two years are pretty much locked in.

Up to the third quarter of 2007, Crest Builder's earnings have been satisfactory. For the nine months to September, revenue was up 21.9% to RM273.31mil while net profit rose 68% to RM27.8mil. Earnings per share (EPS) stood at 22.5 sen. On an annualised basis, this works out to an EPS of 30 sen.

Because of its improved earnings, valuations have turned more attractive. At its current price of RM1.18, it is already trading a large discount to its net tangible asset per share of RM1.65. The stock trades at a price earnings ratio (PER) of 3.93 times. Based on its present order book, Kenanga Research estimates a net profit forecast of RM34.7mil for Crest's financial year ending December 2007. Going by these estimates, the stock is trading at a PER of 4.2 times, which makes it one of the cheapest construction stocks listed on Bursa Malaysia.

The company provides a minimum dividend payout ratio of 25% of net profit, which represents a net dividend yield of approximately 5.5% for FY08.

Crest Builder managing director Yong Soon Chow opines that 2008 will be an even more exciting time for the company. “The company regularly submits bids between RM1.5bil to RM2bil with a success rate of 10% to 15% every year. We are hoping for a better success rate this year,” says Yong, who started the company some 25 years ago.

He adds: “We are looking at bigger things, both in the private sector and government sector. On the private sector, we are now bidding for a large scale job to build a luxury condominium for a high profile international developer somewhere in KL City. I think we stand a strong chance. The results should be known in the first quarter of 2008.”

He adds that Crest Builder is also in negotiations for government construction projects under the Ninth Malaysian Plan. At least RM43.8bil of private finance initiative (PFI) projects are estimated to commence in 2008, with an additional RM36.2bil in the pipeline that has yet to be awarded. Crest Builder has tendered for some sizeable projects under PFI.

“Right now, our revenue contribution is about 30% government and 70% private. This could change next year in favour of government projects,” he says. Bidding and tendering for new jobs aside, Crest Builder has its own plans to keep itself busy in 2008. Construction work on three of its newest projects are expected to commence throughout the year.

In the first quarter of the year, Kelana Jaya has plans to build 2 blocks of office towers for en-bloc sales with a gross development value (GDV) of RM120mil. In the second quarter over in Batu 3, Shah Alam, it will launch Phase 3 of its development, which comprises service apartments at a GDV of RM80mil.

Come the third quarter, it has plans to start construction on a high end service apartment in Mont Kiara. This comes with a GDV of approximately RM150mil.

Presently, Crest Builder is perhaps best recognised for its flagship development, 3 2 Square in Section 19 Petaling Jaya. The development comprises a 16 storey office tower and 237 units of shop offices. It has a 90% take up rate today. Crest has retained 140,000 sq for rental, and this has achieved an 85% take up rate. From the rental of the units and car park, Crest expects a yearly recurring income of approximately RM6mil to RM7mil.

Many are not aware that Crest has been involved in the construction of rather high end condominiums such as The Meritz at KLCC and The Residence in Taman Tun Dr Ismail.

It has also been involved in several government projects such as TAR College, Putrajaya Smart School and the expansion of UiTM phase 1 and phase 2. Yong says that Crest Builder will continue its focus on building high rise structures and condominiums.

The company is looking to buy more parcels of land in the matured areas of Klang Valley and Penang. Not to be left out in the regional property boom, Crest Builder is also in the midst of undergoing feasibility studies in the property markets of Vietnam and Thailand.

“Right now, we are still studying those markets. We are exploring opportunities via joint ventures or strategic partnerships. We are also dealing directly with the government and developers in those areas,” he says.

Kenanga Research says that the property division is expected to remain Crest Builder's key earnings contributor. With the completion of 3 2 Square, future earnings will be underpinned by developments in Batu Tiga and Kelana Jaya.

By TEE LIN SAY

The Star - BizWeek*