Crest Builders – can you wait for the turn around?

[i4value]

Crest Builders had a terrible decade with declining top line, bottom line and returns. From 2012 to 2018, the Group achieved an average ROE of 8%. From 2020 to 2023, the average ROE had declined to negative 11%.



This is obviously a company facing a turn around. The good signs are that its construction arm has a RM 2.2 billion order book as of 2022 and its property development arm has RM 2.2 billion gross development value of projects. And it is fianancial ok.

Its current losses are due to legacy projects and I think that it may take another 2 to 3 years to completely clean them.  So while it is currently trading at less than half its book value, you will have to wait for the market to re-rate it.

For more insights refer to Is Crest Builder a value trap?

[i4value]

[weijian]

hi i4value,

Thanks for sharing another instructive post. In general to me, folks who only post wins have less credibility than those who do post their losses together with their wins.

I quote you below:
But as can be seen from Chart 3, the market price of Crest Builder has been declining since 2019. At the same time, due to the losses, the last dividend payment was in 2019. The result is that as of the end of March 2024, I have a compounded loss of 6.8 % per annum. Refer to Table 6. Luckily my total investment in Crest Builder ranks near the bottom of my stock portfolio (ranked from top to bottom in terms of the total cost of investment).

I wonder if you would be generous enough to share what the kind of lesson/s learnt from this paper loss?

[i4value]

I guess the core belief of value investor is that the market price will eventually reflect the business value.

So I spend a lot of time estimating the business value and invest when I find at least 30% margin of safety. Unfortunately "value investing theory" does not state how long it will take for the market to re-rate.

My experience with Bursa stocks it that the wait can be 6 to 8 years. US stocks takes a much shorter time.

That is why I am still hanging onto Crest Builders. 

Moral of the story? I am re-allocating my funds so that the US will have a bigger chunk.

[i4value]

I guess the core belief of value investor is that the market price will eventually reflect the business value.

So I spend a lot of time estimating the business value and invest when I find at least 30% margin of safety. Unfortunately "value investing theory" does not state how long it will take for the market to re-rate.

My experience with Bursa stocks it that the wait can be 6 to 8 years. US stocks takes a much shorter time.

That is why I am still hanging onto Crest Builders. 

Moral of the story? I am re-allocating my funds so that the US will have a bigger chunk.

[weijian]

hi i4value,

Thanks for the reply.

I have seen selling undervalued stocks to buy less-under valued stocks, backfire. However I have seen not selling undervalued stocks to buy less-under valued stocks, backfire too. Both could be spectacular failures.

We just need to have the wisdom to choose our poison and move on.

[i4value]

I guess in the case of Crest Builders, it suffered due to the slowdown in the Malaysian construction and property sector. I am hanging onto the stock because I think I know the reason for the poor business performance. Anyway it is a small part of my portfolio and maybe there is a "loss aversion" reason as well.