- We initiate coverage on Crescendo Corp with a fair value of RM3.50/share on a 45% discount to our NAV of RM6.36/share. Johor-based Crescendo is the premier developer of industrial property in the state.

- We forecast core earnings to accelerate from RM56m in FY13 (Jan) to RM85mil in FY14F, and rising by a CAGR of 34% to RM134mil in FY16F. This robust growth is underpinned by sustained strong demand for its flagship Nusa Cemerlang Industrial Park (NCIP: 523 acres) where it has already pre-built RM220m of industrial property ready to launch.

- Crescendo offers an attractive direct leverage to the ascendancy of industrial property in Johor where the relocation of SMEs from Singapore would accentuate demand expansion. As it is, SMEs from Singapore account for 56% of its sales at NCIP.

- The entry of Singapore's industrial park developer Ascendas (via a JV with UEM Land) to develop Gerbang Nusajaya – located next to NCIP, would further underscore newsflow momentum by broadening the clientele base.

- NCIP aside, Crescendo would also be fast tracking the development of its new industrial project – Bandar Cemerlang (1,300 acres), where it is setting aside some 500 acres for industrial property. Maiden launch is expected by 1H 2014. The imminent launch of Bandar Cemerlang would more than double its presales of industrial property, currently coming from NCIP and Taman Perindustrian Cemerlang (TPC).

- This aside, Crescendo also has one strategic parcel of land within the Tebrau area (CLSB: Sg.Rekoh) where the development potential is very high due to its highly populated catchment areas. Reclamation works for this 222-acre site is expected to complete year-end.

- We are forecasting its presales to surge from <RM200mil in FY13 to at least RM500m in FY14F and RM700m in FY15F, consistent with management presales target of RM1.2bil over the next two years. This is supported by high pre-tax margins of ~40% for its industrial properties.

- Balance sheet is strong with FY14F net gearing of just 8%. Crescendo has a decent dividend policy of 30%. At current levels, its dividend yield is forecast at 5%-6%.

- Valuation is very attractive from both the earnings and assets standpoint. It is trading at 10% discount to its historical book value of RM3.05/share, and a deeper discount of 57% to our NAV of RM6.36/share. FD FY14F-16F PE is only at 6x-9x, with EPS CAGR of 34%.

Source: AmeSecurities