OSK's commentary on CrestBuilder

Crest Builder reported its earnings last night. And if one looks at Crest Builder's most recent quarterly performance, it does look mighty impressive.

The following is a screenshot from Star website.



However, if one reads the earnings notes, one would realized that this superb performance was aided by revaluation of a property gain of 38.5 million.

• At the same time, during the financial period, a gain arising from changes in the fair value of investment properties amounting to RM38.5 million was recognised in the income statement. Fair value is arrived by reference to market evidence of transaction prices for similar properties and is performed by registered independent valuers having appropriate recognised professional qualification and recent experience in the location and category of the properties being valued.

Now if you strip out this gain from the earnings, Crest Builder's earnings would only be around 6.3 million only. Which is a far cry from the gain of 12 million it made the previous quarter. Isn't this a huge question mark on Crest Builder's q-q performance?

Today, I received two copies of report on this stock, one from KN and one from OSK.

KN recognized the issue with Crest Builder's q-q weakness and stated the following.

• QoQ, revenue and EBITDA fell 12.1% and 39.6% respectively, mainly due to slower recognition of revenue for new construction projects and lower contribution from 3 2 Square as the property was fully completed in 3Q07. 4Q pre-tax however soared 209.6% to RM46.9m, spurred by the exceptional gain as aforementioned.

Now OSK on the other hand, decided not to mention this issue instead. I mean, surely a simple word or two explaining the q-q weakness would be only be right, yes?


OSK wrote the following.

• Do Not Underestimate the Little One
  FY07 earnings displayed a 70.4% growth on back of a 14% rise in revenue. We do not expect its recent orderbook replenishment rate to slow down as it is still eyeing for projects under the 9MP. In our view, CBH’s share price has yet to reflect its recent performance and future prospects. Current cheap valuations should provide a good level to accumulate the stock. Maintain BUY with a TP of RM2.02.
  
  Nice growth. CBH recorded a net profit of RM72.6m (+263% y-o-y). However, included in this amount was a gain on revaluation of its investment properties (RM38.5m). Stripping off this revaluation gain, FY07 earnings still grew by an impressive 70.4%. This is on back of a 14% revenue growth. Relative to our forecast of RM33.1m, core earnings were within expectations, coming in at RM34.1m.
  
  Property boosting margins. The core earnings growth was driven by (i) lower effective tax rate (27% FY07 vis-à-vis 36% FY06) and (ii) margin expansion. Better contributions from the property division were the main source behind this margin expansion. EBIT margins for the property division stood at a whopping 65.6% (56.5% in FY06). However, construction margins were less than attractive at 5.4% (EBIT level)
  
  Further boost from construction? Management has indicated to us that they are eyeing at more projects under the 9MP mainly related to the education segment. It is likely that these targeted projects would involve the construction of universities or schools. We understand CBH is currently undergoing negotiations with the related parties regarding the terms. Thus far, CBH has been replenishing its orderbook very well. Within the past 3 months, the company had secured 2 projects with a combined value of RM382m. We foresee more to come from this little contractor.
  
  Rental income remains good. We were guided that 80% of its corporate offices in Three 2 Square have been rented out. The rental rates vary between RM3.30 to RM4 per sq ft. It will soon be operating a car park in the similar vicinity. On its property development, we were told that the S&P agreement to purchase the land has yet to be completed. The Mont Kiara development is also awaiting approvals from the relevant authorities.
  
  Maintain BUY. Current valuations are running very low, at 3.4x and 2.7x FY08 and FY09 earnings respectively. We recommend investor’s to accumulate this stock before it narrows the valuation gap. Our target price of RM2.02 is based on 6x FY08 earnings.

See how OSK decided to judge Crest Builder on what they did for the year. No explanation was made on why if one strips out the revaluation gains, on a q-q basis, Crest Builder's net earnings plunged from 12 million to just 6.3 million!

How?

Crest Builder 2007

CrestBuilder announced its earnings last night. Quarterly rpt on consolidated results for the financial period ended 30/6/2007

Crest Builder Holdings Bhd (8591.KU) - Malaysia
   2nd quarter ended June 30:
   Figures are in Ringgit (MYR).

                                 2007               2006
Revenue                 MYR90,241,000      MYR54,119,000
Pretax Profit              11,517,000          6,590,000
Net Profit                  8,057,000          3,695,000
Earnings Per Share           6.50 Sen           4.80 Sen
Dividend                      Omitted            Omitted

   6 months ended June 30:

Revenue                   171,285,000        113,017,000
Pretax Profit              23,275,000         15,248,000
Net Profit                 15,797,000          9,322,000
Earnings Per Share          12.80 Sen           7.70 Sen
Dividend                      Omitted            Omitted

 

Current half year fy 2007 earnings totals some 15.797 million. Not bad.

Back in November 2005, I first blogged on Crest Builder, Ze Numbers Game!

My grouse was that the OSK writer was simply way too optmistic.

• 15.5 -> 16.2 -> 26.7 -> 41.3 -> 50.7million.

The purple fonts represented its incredible earnings projections. Point was, Crest Builder was touted and promoted to the investing community based on that 41.3 million earnings projections. (Here's an incredible footnote. Despite Crest Builder decent performance, Crest Builder earnings at this moment of time still could not reach that 41.3 million!)

And then my second posting was Ze Numbers Game: II, posted on Aug 21st 2006. Earnings looked decent but it's performance was simply no way close to what OSK had touted. (ps. did you see that OSK had a whopping TP of rm 2.59 then? LOL! Yes rm2.59! And the highest Crest Builder ever did was high of over 1.45 back in July 2007!)

Nov 2006. Crest Builder Again

The biggest thing besides the bragging from the writer was the bare facts.

net profit
fy 2003 17.5 million
fy 2004 16.3 million
fy 2005 12.2 million

Those were the numbers Crest Builder had recorded. And as can be seen. Crest Builder was doing rather poorly since fy 2003. Yes?And how much did OSK forecast CB's fy 2006 earnings? 32.9 million!

So how did Crest Builder do for its fy 2006? An earnings of 20.679 million. ( Quarterly rpt on consolidated results for the financial period ended 31/12/2006 )

( Other postings: Regarding Crest Builder Again , Crest Builder - Fulfilling What Prophesies??, Crest Builder's Home Run? , More Disposal of Shares Seen in Crest Builder )

Btw, here is the link to Crest Builders earnings in May 2007. Quarterly rpt on consolidated results for the financial period ended 31/3/2007

Now back to Crest Builder itself.

So how has Crest Builder been doing?

Firstly, earnings aside, as a business investor, I would like to see how Crest Builder has manage its balance sheet all these years. And here is a simple exercise one can do. Take the quarterly earnings posted yesterday ( See Quarterly rpt on consolidated results for the financial period ended 30/6/2007 ) and compare their balance sheet now versus its balance sheet say 2 years ago.

Point of argument for such exercise is simple.

If the company (Crest Builder) is doing well, then one should see some wealth generation in its balance sheet, right?

As of the earnings reported last night, Crest Builder had some 28.837 million in its piggy bank, trade receivables 100.788 million, total loans 153.567 million (a net debt of 124.680 million!). Half year net earnings is 15.797 million.

Two years ago, same period (Quarterly rpt on consolidated results for the financial period ended 30/6/2005 ) Crest Builder had some 24.788 million its piggy bank, trade receivables 52.242 million, total loans 105.146 million (a net debt of 80.358 million). Half year net earnings then was 8.048 million.

Compare both set of simple yardsticks.

Yes, earnings has doubled but does one see Crest Builder progressing and generating wealth as a company?

How?

More Disposal of Shares Seen in Crest Builder

Here's another update:

Director's Disclosure of Dealings in Securities pursuant to Chapter 14 of the Bursa Malaysia Securities Berhad ("Bursa Securities") Listing Requirements

Disposal of 2,687,700 shares.

Incredible!

If Crest Builder was half as good as what OSK tried to portray, why are these folks disposing their shares in Crest Builder like plague?

Why?

Crest Builder's Home Run?

Just as I updated my blog posting on Crest Builder ( Crest Builder - Fulfilling What Prophesies?? ), I realised that Crest Builder reported its earnings yesterday.

As mentioned in Crest Builder Again, Crest Builder had only made 9.322 million for its first 2 quarters of fy 2006. And for OSK to forecast its fy 2006 earnings to be at rm32.9 million, I find it totally astounding!

This was Crest Builder earnings: Quarterly rpt on consolidated results for the financial period ended 30/9/2006

Crest Builder announced its Q3 earnings was rm7.225 which was certainly much more than CB's Q2 net earnings of rm3.695 million.

But...

As good as its earnings was, it was never gonna be enough. Not when one projects such an astronomical set of earnings.

Hence, the OSK writer was forced to write in the following manner.

• Astounding! CB’s 9M06 turnover and net profit grew significantly by 25.4% and 71.2% respectively (Fig. 1). Even after adjusting for the cessation of goodwill amortisation in accordance with FRS 3, CB would still register YTD net profit growth of 38.4%. Despite the much stronger 3Q06, annualised net profit came in at RM22m, still a far cry from our initial projection of RM32.9m. It managed to however, beat the market consensus by at least 10%.

A far cry from their projection of rm32.9 million!! And that projection is looking might silly ain't it?

• Fine-tuning required. Despite the impressive set of results, CB is still lagging behind our initial projections. The Group only has 1Q left to register a further RM16.4m in net profit to hit our forecast! Much of this, as we foretold earlier, was the extremely slower work progress recognition during the 1H06. Hence, we are gladly fine-tuning our FY06 turnover and net profit projections from RM336m and RM32.9m to RM310.4m and RM26.8m respectively

LOL!!! So they forced themselves to 'fine-tune' their projections DOWN TO rm26.8 million.

Fine-tune.

What a nice set of words!!

And consider this. Current Crest Builder net profit is only rm16.547 million. So despite knowing that the group has only one reporting quarter left, OSK still CHOSE to SET A VERY OPTMISTIC projection of rm26.8 million!

Which means, they are saying Crest Builder will report at least rm10.253 million in earnings for its Q4 quarter.

Mighty optimistic again considering Crest Builder only earned rm7.225 for its Q3.

Now take a look at this.

• Reiterating BUY with a refined 12-month target price of RM1.70. Based on the Group’s current share price of RM1.03 and forward fully diluted FY06 of 18.7sen and FY07 EPS of 30.5sen, the CB is currently trading at a forward PER of 5.5x and 3.4x in FY06 and FY07 respectively, a significant discount of 21.3% and 51.8% to its average peers’ PE of 7.0x. This is unjustifiable given CB’s strong and solid earnings prospects.

Guess what, a refined 12-month target price of RM1.70.

LOL!!!!

Refined!

Another choice word!

What happened to their TARGET PRICE of rm1.84 (see Crest Builder Again) set just on the 14 Nov 2006?

This was a HOME RUN stock, isn't it?!!

A home run stock which had its TP reduced from rm1.84 to 1.70?!!

A home run stock which is seeing a lot of SELLING (see Crest Builder - Fulfilling What Prophesies?? ) ??!!

A home run stock was promoted at 1.18, a day after the stock gained 13.5% the previous day!?

A home run stock which opened the day at 1.03, down 15 sen, after it's rosy write-up on the 14th Nov!?

How can?

Crest Builder - Fulfilling What Prophesies??

Blogged on this stock recently: Crest Builder Again and updated it here, Regarding Crest Builder Again. In the update, I mentioned the following:

• Now I do understand that some times certain research reports tends to be overly optmistic but this incident regarding Crest Builder leaves a really bad taste, especially the manner in which the writer boasted that Crest Builder has risen some 24.2% to 1.18 in a space of just one month. Alas, how short his memory was for he too recommended the same exact stock back on 6th May when it was trading at 1.12. So if one purchased his recommendation back in May at 1.12, there is really nothing to shout about, is there?
  
  Anyway, isn't it strange that one of the shareholder had disposed some 2,507,000 shares in Crest Builder on the very same day that OSK released that same research report?
  
  Strange timing or what?

They say pictures say a thousand words.

The report from OSK was published on the 14th Nov.

See how Crest Builder gained 14 sen or 13.5% the day before OSK wrote that STRANGE write-up?

And the nice handy work is shown below!

And if that is not enough, how about these disposal of shares announced..

Changes in Sub. S-hldr's Int. (29B) - Yong Tiok Chin (disposed 20,000 at 1.16)

Changes in Director's Interest (S135) - Yong Soon Chow (disposed 460,000 at 1.168)

Changes in Sub. S-hldr's Int. (29B) - Yong Tiok Chin (disposed 2,273,000 at 1.163)

Changes in Sub. S-hldr's Int. (29B) - Yong Tiok Chin (disposed 2,507,000 at 1.194)

How Brown Cow?

Crest Builder

Crest Builder just announced its earnings. It's impressive..

   Crest Builder Holdings Bhd (8591.KU) - Malaysia
   2nd quarter ended June 30:
   Figures are in Ringgit (MYR).

                                 2006               2005
Revenue                 MYR54,119,000      MYR63,443,000
Pretax Profit               6,590,000          5,464,000
Net Profit                  3,695,000          2,923,000
Earnings Per Share           3.00 Sen           2.60 Sen
Dividend                      Omitted            Omitted

   6 months ended June 30:

Revenue                   113,017,000        116,893,000
Pretax Profit              15,248,000         12,844,000
Net Profit                  9,322,000          8,048,000
Earnings Per Share           7.70 Sen           7.10 Sen
Dividend                      Omitted            Omitted

Crest Builder closed at 0.97 sen. Down 2 sen.

Ok, so what's wrong?

Crest Builder current earnings of 9.322 million for its first 2 quarts of current fiscal year its much more than what Crest Builder did last fiscal year same period. Crest Builder managed 8.048 million for last fiscal year.

Well..

Remember this blog posting: Ze Numbers Game: II

So Crest Builder although doing 'ok' and perhaps 'good' with half year earnings totalling 9.322 million but just how good is this earnings when OSK numbers is projecting an astonishing earnings of 41.3 million for full year fy 2006!!!!!!!

So what do we have??

Ahem.. 'lost' research report.. amazingly 'flying sky' earnings projections...

Have a read again:

Back in April 2005, OSK wrote about Crest Builder. Price back then was 1.44. OSK gave it a price target of 2.59.

And I wrote that blog posting, Ze Numbers Game on Nov 2005.

Here is an extract of what I had written then.

<=============>

And this is how OSK valued Cresbld:

• However, by taking into account only the basic shares outstanding, we obtained a fair value of RM2.59 based on FY06 earnings, which provides an upside of 72.7% to its current share price.

ahem!

See onot?

And they based it on fy 2006 earnings! Earnings which went bang! bang! bang! like this below:

15.5 -> 16.2 -> 26.7 -> 41.3 -> 50.7million.

Fiyoooh... 41.3 million!!!

Incredible isn't it?

2005 FY projections is already perhaps a bit too optimistic at 26.7 million... but no... OSK did not based their valuations upon those numbers but instead they based it at an even more optimistic earnings of 41.3 million!!!!!!!!!!!!!!!

Now wouldn't u say that this is a bit too optimistic?

And when they make such optimistic projections, this simply allows them to create a stock with such a great upside potential (72.7% wor!) when they make their so-called BUY recommendation!

ps. Cresbld closed at 0.795 today. (back in Nov 2005)

<=============>

And how did Crest Builder did for its fiscal year 2005? Well have a look at its last reported quarterly earnings on Feb 2006.

Crest Builder made a net profit of only 12.198 million.

And how did OSK played ze number game?

Well the table below says it all...

OSK had projected an earnings of 26.7 million! Crest Builder only made a net profit of only 12.198 million.

Now check this out, today OSK has a brand new report on Crest Builder again.

Price of Crest Builder is now 1.12 and OSK has given it a 12-month target of 1.49.

LOL!!!... yup... just 1.49! (ps. In April 2005, Price back then was 1.44. OSK gave it a price target of 2.59!)

Wait... check this out too.

Ahem.. can you see that they have projected an earnings of 31.9 million for Crest Builder's fy 2006 earnings and an earnings of 35.2 million for its fy 2007. (last April 2005, OSK projected 41.3 million!! Does this mean they are less optimistic? LOL!)

And as stated in OSK own table, this translates to a 161.7% increase in earnings for this fiscal year!

So for a stock that had a whopping decline of 25% in fy 2005, is projected to grow 161.7% this fiscal year.

Highly incredible, isn't it?

Now check this out also...

The below is a screen-shot of their reasoning...

Did I miss a report on Crest Builder since last April 2005? This is because the writer is saying:

• CB's stock price has gained 30.2% since our last upgrade to BUY recommendation.

Ps... does someone have a copy of that report? ... cos I find it really strange since I can't even search for this report in their archives.

• Group is currently trading at a forward PER of 5.1x, which is trading at a significant discount of 44.2%

It would be good to note that it is CHEAP because their forward PER of 5.1x is based on an earnings which is projected to grow 161.7% this year!

LOL!! Any stock which can grow so much would surely be cheap. Yes or not Shirley?

:D

Ze Numbers Game: II

Back in April 2005, OSK wrote about Crest Builder. Price back then was 1.44. OSK gave it a price target of 2.59.

And I wrote that blog posting, Ze Numbers Game on Nov 2005.

Here is an extract of what I had written then.

<=============>

And this is how OSK valued Cresbld:

• However, by taking into account only the basic shares outstanding, we obtained a fair value of RM2.59 based on FY06 earnings, which provides an upside of 72.7% to its current share price.

ahem!

See onot?

And they based it on fy 2006 earnings! Earnings which went bang! bang! bang! like this below:

15.5 -> 16.2 -> 26.7 -> 41.3 -> 50.7million.

Fiyoooh... 41.3 million!!!

Incredible isn't it?

2005 FY projections is already perhaps a bit too optimistic at 26.7 million... but no... OSK did not based their valuations upon those numbers but instead they based it at an even more optimistic earnings of 41.3 million!!!!!!!!!!!!!!!

Now wouldn't u say that this is a bit too optimistic?

And when they make such optimistic projections, this simply allows them to create a stock with such a great upside potential (72.7% wor!) when they make their so-called BUY recommendation!

ps. Cresbld closed at 0.795 today. (back in Nov 2005)

<=============>

And how did Crest Builder did for its fiscal year 2005? Well have a look at its last reported quarterly earnings on Feb 2006.

Crest Builder made a net profit of only 12.198 million.

And how did OSK played ze number game?

Well the table below says it all...

OSK had projected an earnings of 26.7 million! Crest Builder only made a net profit of only 12.198 million.

Now check this out, today OSK has a brand new report on Crest Builder again.

Price of Crest Builder is now 1.12 and OSK has given it a 12-month target of 1.49.

LOL!!!... yup... just 1.49! (ps. In April 2005, Price back then was 1.44. OSK gave it a price target of 2.59!)

Wait... check this out too.

Ahem.. can you see that they have projected an earnings of 31.9 million for Crest Builder's fy 2006 earnings and an earnings of 35.2 million for its fy 2007. (last April 2005, OSK projected 41.3 million!! Does this mean they are less optimistic? LOL!)

And as stated in OSK own table, this translates to a 161.7% increase in earnings for this fiscal year!

So for a stock that had a whopping decline of 25% in fy 2005, is projected to grow 161.7% this fiscal year.

Highly incredible, isn't it?

Now check this out also...

The below is a screen-shot of their reasoning...

Did I miss a report on Crest Builder since last April 2005? This is because the writer is saying:

• CB's stock price has gained 30.2% since our last upgrade to BUY recommendation.

Ps... does someone have a copy of that report? ... cos I find it really strange since I can't even search for this report in their archives.

• Group is currently trading at a forward PER of 5.1x, which is trading at a significant discount of 44.2%

It would be good to note that it is CHEAP because their forward PER of 5.1x is based on an earnings which is projected to grow 161.7% this year!

LOL!! Any stock which can grow so much would surely be cheap. Yes or not Shirley?

:D

Ze Numbers Game!

Ok..ok..ok...we have this company which made a reverse takeover of a listed company...

And the company net earnings showed the following set of numbers:

15.5 -> 16.2

Now if a research company comes in with all guns blazing: Bang! Bang! Bang! and declares the following earnings projections (in green italic):

15.5 -> 16.2 -> 26.7 -> 41.3 -> 50.7million.

And the most recent/rolling net earnings was only at 16.9million....

So a company with a hardly visible growth record is expected to grow ini macam!

What do you think of such earnings projections?

Fairly optimistic?

Or overly optimistic?

Oh i am toking about OSK and Crestbuilder. Click here for proof: Crestbuilder

So the company reported its earnings today. Click here

So this stock made a total net profit of 9.667million for the first 3 quarters of its fiscal year 2005.

Nothing really wrong lah with the company's earnings performance. (Make moola mah... beh pai mah... tiok boh?)

but...but...butt...buttt.....

it just makes u wonder.... cos OSK is projecting a net profit of 26.7 million for Crest Builder fiscal year 2005.

Which means Crest Builder has to make an astounding net profit of 17.03 million (err.. 26.7 - 9.667 = 17.03 lor) for its Q4 period.

Dun u think that would pretty hard to achieve?

And if so.... we have yet another company failing to meet EXPECTATIONS?

or perhaps the EXPECTATIONS was simply wayyyyyyyyyyy too optimistic?

ahem... makes u wonder.... doesn't it?

No? How about this then? When OSK made that write-up in April 2005, Cresbld was trading at a price of 1.44. And this how OSK valued Cresbld:

However, by taking into account only the basic shares outstanding, we obtained a fair value of RM2.59 based on FY06 earnings, which provides an upside of 72.7% to its current share price.

ahem!

See onot?

And they based it on fy 2006 earnings! Earnings which went bang! bang! bang! like this below:

15.5 -> 16.2 -> 26.7 -> 41.3 -> 50.7million.

Fiyoooh... 41.3 million!!!

Incredible isn't it?

2005 FY projections is already perhaps a bit too optimistic at 26.7 million... but no... OSK did not based their valuations upon those numbers but instead they based it at an even more optimistic earnings of 41.3 million!!!!!!!!!!!!!!!

Now wouldn't u say that this is a bit too optimistic?

And when they make such optimistic projections, this simply allows them to create a stock with such a great upside potential (72.7% wor!) when they make their so-called BUY recommendation!

ps. Cresbld closed at 0.795 today.

And when OSK made the buy recommendation Cresbld was at 1.44!

Oh... see the clear and present danger of relying on research reports!