OSK confident Crest Builder will meet FY08 earnings forecast

CREST Builder Holdings Bhd that reported poor 1QFY08 results due to the nature of a weak first quarter compared to the rest of the year would be able to make up and meet the expected FY08 earnings, said OSK Research.

The research house maintained its buy recommendation on the stock at RM1.01 with a target price of RM1.80 on the back of good inflow of new projects.

Crest Builder on Monday announced it had secured a RM165.9 million contract from Panareno Sdn Bhd to construct a serviced apartment in Bukit Damansara, Kuala Lumpur.

The project, expected to begin in the third quarter this year, would be added to the company’s current order book of RM1.2 billion.

“We estimate around 20% or RM33 million of the revenue from this project to be added to the company’s current FY08 total revenue of RM480 million.

“So far, there are two other projects secured in 2008, namely the condominium development at Jalan Ceylon, Kuala Lumpur, and the phase 4A construction of a 40-storey condominium,” it said, adding that all three latest projects were expected to be completed in 2010.

The research house said since the new order book replenishment from possible new projects in FY08 had already been included in previous estimates after the 1Q results, it was maintaining its FY08 earnings forecasts.

“Most of the impact in the contracts secured this year will be seen in FY09 and FY10 as the company will be able to gain most of the income from then on,” it said.

OSK Research said over 75% of Crest Builder’s revenue comes from its construction contracts and ongoing projects that historically start to pick up in the second half of the year.

“Construction gross profit margin has been around 8% to 12% since FY05 compared to 15% to 18% margin registered prior to FY05 due to margin squeeze from higher cost of raw materials that could not be passed on.

“However, new projects secured this year have already taken into account the higher price of oil, steel, cement and other construction materials,” it added.

Crest Builder edged up one sen to close at RM1.02 yesterday.

By The EDGE Malaysia