KUALA LUMPUR (Oct 3): JF Apex Securities Research has downgraded Crest Builder Holdings Bhd (CBHB) to Hold (from Buy) with a lower target price of RM1.33 (from RM1.81) and said it foresees a challenging outlook for the company, as it may face a tough transition from contractor to developer.

In a note Friday, the research house said the company had scaled back some of its property projects by rescheduling project timelines, in order not to overstretch its balance sheet (with current net gearing ratio of 1.3x, and adjusted net gearing ratio of 0.7x excluding sizable project loan which is recourse to concession) and better position itself for future projects.

“We are concerned about the groups depleting construction order book and the challenging property market outlook ahead, especially the impact on its soon-to-be-launched transit-orientated-development (TOD) projects next year, i.e. The Bank (Dangi Wangi) & Kelana Jaya LRT station, of which comprises of serviced apartments that could carry commercial titles (Dangi Wangi) which are subject to GST.

“The group has also highlighted that it will slow down the pace of its property projects, while still remaining focused on its bread-and-butter business of construction, affordable housing projects (e.g. Alam Prima), and construction related works for its maiden Transit-Orientated-Development (TOD) projects.

“We revised downwards our earnings forecasts following the 2Q14 results which were released recently by adjusting downwards of our order book assumption. Our 2014F and 2015F net earnings are now at RM16.2mil (-67% y-o-y) and RM27.7mil (+71% y-o-y) respectively,” it said.