News  Last Friday, Crescendo Corporation Bhd (CRESNDO) made an announcement that they had entered into a Deed of Termination on the joint venture with Mavern Pte Ltd (MPL), Meiban Resources Sdn. Bhd. (MRSB) and Medini Capital Sdn. Bhd. (MCSB) a 51%-owned subsidiary of CRESNDO. The JV was initiated in 23 July 2013 where CRESNDO would buy the remaining 49% stake in MCSB for a total purchase consideration of RM8.3m.

Comments  To recap, CRESNDO entered into the joint venture with MPL and MRSB back in July-2013 for the development of high-rise residential property in Nusa Cemerlang Industrial Park (NCIP) in which we estimated to have a GDV of RM635.0m. MPL is a developer in Singapore, better known for its M38@Jln Pemimpin development.

 We were taken aback by the termination of the joint venture. We gather that the termination was driven by MPL and MRSB as they are changing their investment strategy to reduce their development exposure in Johor. Considering the threat of overbuilding of high-rise residentials in Johor, we reckon it is a prudent measure not to pursue the deal for the meantime.

 Post termination of the JV and acquisition of the remaining stake held by MPL and MRSB, MCSB would be a wholly-owned subsidiary of CRENSDO. This would subsequently increase CRESNDO’s effective GDV of the project from RM317.5m to RM635.0m based on our assumptions of a 4.0x plot ratio and 75% utilisation rate to yield 1.1m sf NSA pegged at a reasonable RM600psf ASP. Consequently, our FD RNAV increases from RM5.72 to RM6.32.

Outlook  CRESNDO’s prospect remains intact with c.RM850.0m (50:50 residential and industrial) worth of launches over the next two years. Its residential project, namely Bandar Cemerlang (GDV: RM3.0b), featuring affordable landed residential properties priced below RM500k/unit tapping into the ever-resilient mass market is targeted for launch in early 2015.

Forecast  There are no changes to our FY15-16E estimate despite the termination of the JV as we only built in project contributions from FY17 onwards.

Rating Maintain OUTPERFORM

Valuation  We conservatively opt to maintain our Target Price of RM2.95 which implies a wider 53% discount to its RNAV

of RM6.32 (previously, 48% discount to RNAV of RM5.72) which is at its trough levels. At our TP of RM2.95, CRESNDO still gives dividend yields of 5.1%-5.3% for FY15-16E that is still inline with its mid-cap peers of 4.0%-6.0%. Hence, we continue to maintain our OUTPERFORM call on the stock as we reckon that downside risks are limited given that most negatives could have been priced in whilst their project offerings are largely affordable housings or industrial developments in Johor, which are resilient segments.

Risks to Our Call Unable to meet its sales target.

 Sector risks, including further negative policies.

Source: Kenanga