Period  3Q15 / 9M15

Actual vs. Expectations Crescendo Corporation (CRESNDO)’s 9M15 core earnings of RM38.2m came in below our and consensus expectations, accounting only 47% and 60% of our and consensus FY15E full-year estimates. The weaker than expected results was mainly due to the lower than expected industrial property inventory sales recognition from Nusa Cemerlang Industrial Park (NCIP).

 Positively, its 9M15 sales of RM182.0m were well ahead of our full-year estimates of RM200.0m driven by its residential and commercial properties in Taman Dato Chellam (TDC).

Dividends  No dividend was declared for the quarter as expected.

Key Results Highlights YoY, CRESNDO’s 9M15 core earnings decreased by 45% to RM38.2m following the decrease in revenue (-18%) coupled with compression in EBITDA margins (-10ppt) to only 32.6%. The slump in revenue and margin compression was mainly due to lower industrial property inventory sales from NCIP, which normally contribute higher margins as compared to commercial and residential properties.

 QoQ, its 3Q15 core earnings saw an improvement of 24% to RM18.1m despite a flattish revenue growth of 4%. The improvement on its core earnings was largely driven by the property operating margins improving by +13ppt to 43% due to similar reasons above

Outlook  The overall property market is expected to be challenging in 1QCY15, especially in Johor. However, we believe that CRESNDO light balance sheet and right product offerings (affordable landed residential) in Johor should provide some cushion

 CRESNDO had planned 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.

Change to Forecasts No changes to FY15-16E sales of RM200m and RM209m, respectively. However we are tweaking our sales mix to lean more towards its township offerings rather than its NCIP inventory sales. This will result in softer billings and margin compressions. So, we reduce our FY15-16E earnings estimate by 20%-9% to RM65.7m and RM78.8m, respectively. Its unbilled sales of RM126m would provide at least another year of earnings visibility.

Rating Maintain MARKET PERFORM

Valuation  We further reduce our TP to RM2.46 from RM2.50 previously as we further widen our RNAV discount to 61% (previously, 60%) pegging it to its historical high discount levels. Our TP implies FY16E Core PER of 7.0x (FD Core PER 8.3x) which is in-line with small-mid cap peers average of 7.1x. Thus, we are comfortable maintaining our MARKET PERFORM. A lot of negatives has been priced in but the stock still lacks fresh catalysts.

Risks to Our Call Unable to meet its sales target.

 Sector risks, including further negative policies.

Source: Kenanga