Period  3Q14 / 9M14

Actual vs. Expectations 9M14 core earnings of RM68.2m were within market but above our expectations, accounting for 80% of street estimates and 85% ours. Results were above our expectations due to better-than-expected margins from its property division.

 9M14 property sales of RM139m came slightly below expectations as the company held back launches and sale of its NCIP inventories, as they took a cautious stand towards Budget-2014 in Oct-13. However, 9M14 sales are strong, at 42% higher than the full FY13 sales.

Dividends  None, as expected.

Key Results Highlights

 QoQ, core earnings was lower by 6% to RM24.4m. EBIT margins rose by 5.4ppt to 47.2% on higher selling prices of its NCIP inventories and lower-than expected operating cost. However, revenue slid by 10% on lower sale of property inventory while interest expense rose from RM0.1m to RM0.5m due to higher borrowings. The group also recognized RM23m investment property revaluation gains this quarter, which caused reported earnings to rise by 83%.

 YoY, both 3Q14 and 9M14 core earnings were up 141% and 115%, respectively, as it was driven by higher property billings and inventory sales. The sale of NCIP inventories was the main driver of strong EBIT margins expansion in 9M14 by 18.1ppt to 41.7%

Outlook  Approvals should be obtained in the next quarter for its new affordable township (Bandar Cemerlang) and JV project in NCIP to build apartment. However, the group may adopt a ‘wait-and-see’ approach in early 2014 to see how the Budget-2014 measures will affect the market.

Change to Forecasts We have raised FY14E core earnings by 4% to RM83.6m (+50% YoY) but lowered FY15E by 5% to RM95.5m (+14% YoY) due to adjustment in sales assumptions, higher property margins, lower operating cost and additional interest expenses (refer overleaf).

Rating Maintain OUTPERFORM

Valuations  We continue to like Crescendo as a small-mid cap proxy to the Johor play for its rich margins, industrial and affordable housing play. Maintain TP of RM4.00 based on unchanged FD RNAV discount rate of 30% on our FD RNAV of RM5.72.

Risks to Our Call Sector policy risks, which may cause knee-jerks reactions in share prices.

Source: Kenanga