- We are downgrading Crescendo Corp from BUY to HOLD, with an unchanged fair value of RM3.50/share - based on a 45% discount to our NAV of RM6.36/share.

- The rating downgrade is because its share price has already surpassed our fair value.

- Based on its last traded price, the stock is trading on FD FY14F-16F PEs of 8x-12x , which we deemed fair given its smaller capitalisation and relatively lower trading liquidity compared to the more established developers – UEM Land and Mah Sing.

- The share price discovery to our fair value has admittedly been on an accelerated path, underpinned by an initial wave of institutionalisation of its shareholding structure.

- Its investment thesis centring on rising demand for industrial properties in Johor is well-digested.

- In our opinion, management must demonstrate stronger commitment to drive presales in order to meet rising earnings expectations now embedded in its share price.

- Such a move may require the group to strike a delicate balance between pursuing an aggressive presales strategy to ensure earnings deliverance, and maximising sales proceeds by embracing a strict pricing policy in anticipation of future appreciation in capital values.

- The latter may lead to weaker presales in the near term. We have forecasted its presales of RM500mil in FY14F, and RM700mil in FY15F. This is consistent with management presales target of RM1.2bil over the next two years.

- To be sure, its major shareholder has just disposed some 3 million shares in two days (16 and 17 May 2013, representing ~1.5% of its outstanding issued share capital. The transactions were concluded at RM3.10/share.

- On the flipside, the group’s balance sheet remains at FY14F net gearing of just 8%. Crescendo has a decent dividend policy of 30%. At current levels, its dividend yield is forecast at 4%-5%.

Source: AmeSecurities