Lower margin from higher low-cost housing component seen for Crescendo

Maintain outperform with less target price (TP) of RM1.55: Crescendo Corp Bhd’s first nine months of financial year 2018 (9MFY18) core net profit (CNP) of RM32.6 million is in line at 77% of our full-year estimate. No consensus estimates available. Property sales of RM154.4 million may also be on course to meet up our target of RM221 million. No dividends were declared, as expected. There are no changes to the FY18 to estimated FY19 earnings.

Their 9MFY18 CNP registered a solid year-on-year (y-o-y) growth of 51% underpinned by Bandar Cemerlang decent improvements, namely in revenue (+21%) and earnings before interest, taxes, depreciation and amortisation (ebitda) margins by two percentage points (ppts) to 27%. These improvements in revenue and margins are mainly due to decent progressive billings and contributions from industrial properties. Quarter-on-quarter (q-o-q), the third-quarter (3QFY18) CNP declined 43% mainly due to weaker revenue (-18%) stemming from lower property sales in industries.

Moving forward, Crescendo is trying to launch 24 units of cluster factories at Taman Perindustrian Cemerlang, 102 units of mid-market landed residential properties at Bandar Cemerlang, 54 units of shop offices at Bandar Cemerlang and Taman Desa Cemerlang as well as 426 units of affordable housing at Bandar Cemerlang and Tanjung Senibong in Johor with a mixed gross development value greater than RM300 million. Unbilled sales stood at RM168.4 million, providing one or more year’s visibility.

We make no changes to the FY18 estimate (E) to FY19E earnings estimates and keep our FY18E sales target at RM221 million. We maintain our “outperform” call after considering its decent sales performance and better mixture of industrial product sales coupled with improving profitability. However, we lower our TP to RM1.55 (from RM1.60) predicated on a current -1.0 standard deviation level historical revised net asset value discount of 76% (from 75%). We believe such valuation levels are fair considering its full experience of Johor. Our TP implies 9.2 times FY19E price-earnings ratio which will be below its historical average of 11 times.— Kenanga Research, Dec 26

 

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