CONSTRUCTION outfit Crest Builder Holdings Bhd is looking at expanding its businesses vertically by investing in construction technologies and the industrialised building system (IBS), including partnering proprietors in these segments.
Its group managing director Eric Yong Shang Ming says growing in the construction supply chain, especially in areas that can reduce construction costs and increase operational efficiency, will prove lucrative in the long run.
“We are talking to a few potential candidates and prospects to see how we can work closely together on IBS as well as various other forms of technology that can make construction safer and more efficient. I’m trying to move the group up and down the supply chain,” he tells The Edge.
Several construction companies, for example Gamuda Bhd, IJM Corp Bhd and Sunway Construction Group Bhd, have been investing in IBS and other forms of technology-based construction systems over the last few years to increase their margins and improve workflow.
However, Crest Builder is unlikely to be investing in a full-fledged IBS plant as it is a small-sized construction company and may not have the capacity to do so, says Yong. However, partnering standalone IBS and other technology proprietors is one way to go about it, he adds. “If I tell anyone that I want to own a plant now, they will be very sceptical because the capital outlay is huge. A minimal set-up will cost you RM60 million to RM80 million. If you are looking for a full-fledged set-up, you will be looking at a cost of RM200 million to RM300 million.
“Of course, since the investments are heavy, I’m trying to identify potential partners and even investors on how to go in … We may even go in as just the installing partner or the construction partner for the IBS set-up,” he explains.
Major projects that use IBS in their construction work include Forest City in Johor and Rumah Selangorku. “I see this (partnering an IBS proprietor) as ideal because IBS could be more lucrative than conventional construction in the long run,” says Yong.
He does not rule out the possibility of Crest Builder’s project in Bandar Bukit Tinggi, Klang, being fully based on IBS. Last December, the group acquired a 6.54-acre parcel in the township from WCT Holdings Bhd for RM55 million. It plans to build 998 apartments measuring from 550 to 1,250 sq ft. Selling prices are from RM480 to RM520 psf, giving the project an estimated gross development value (GDV) of RM450 million.
The project is situated between Tesco Extra Klang and AEON Mall Bukit Tinggi, with two light rail transit (LRT) stations within walking distance.
Crest Builder is also in the final stage of getting the required approvals for its project, Latitud8, near the Dang Wangi LRT station. The project, which is a partnership with Prasarana Malaysia Bhd and has a GDV of RM1.1 billion, has been on Crest Builder’s books since 2012. As it was among the first transit-oriented developments (TODs) undertaken by Prasarana, it faced a lot of red tape. For example, it needed Cabinet approval to convert the status of the land from transport to commercial use and the plan was changed a few times. However, for Crest Builder, it was worth the hassle and wait.
“In the last two years, there has been a change in the plan. We wanted to reduce the size of the suites a little, which meant a slight realignment of the units. As the landowner, Prasarana wanted to convert its office space into office suites. “If you look at the numbers, on average, we were going to pay about RM200 million for 2.7 acres. In 2012, a lot of people said that was too expensive. But if you look at the land today, we are actually paying current prices.
“The land has minimal holding cost because it is 90% paid for in kind. Of the 10% that I had to pay in cash, I have only paid 5%. Over eight years, I have only paid 5% to keep the whole land for all the planning, which I think is a very good deal,” says Yong.
Latitud8 will now be targeted at local buyers instead of foreigners, says Yong, which explains the reduction in the size of the units so that they can be sold for less than RM1 million. Besides Latitud8, Crest Builder is doing another TOD with Prasarana at the Kelana Jaya LRT station that will feature retail units, serviced residential suites and offices. Prasarana is entitled to 24.8% of the GDV of RM1 billion.
Yong says Crest Builder has applied to have the transport land re-gazetted as commercial land. Approval, scheduled for the end of March, could be delayed owing to the Movement Control Order that came into force on March 18. Crest Builder has an outstanding construction order book of RM1.2 billion, replenished by RM571 million worth of contracts signed last year. The new contracts comprise a RM99.6 million job to build a hotel, a RM155 million deal with Glomac Bhd and a RM316 million undertaking to construct a 55-storey serviced apartment block.
This year, Crest Builder aims to secure RM500 million worth of construction contracts, says Yong, adding that he hopes to maintain a gross profit margin of 7% to 10% for the high-rise projects.
AmInvestment Bank initiated coverage of Crest Builder with a “buy” call and a target price of RM1.83 on March 12. Last Wednesday, the counter closed at 64.5 sen, giving the company a market value of RM114 million.
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