Period

1Q16/3M16

Actual vs. Expectations

1Q16 core net profit of RM9.8m was within our expectation accounting for 22% of our full-year estimates, but came in below market expectations making up only 18% of consensus full-year estimate.

In terms of property sales, there are no sales data available yet for 1Q16 at this juncture and we will be seeking clarity with management. However, we reckon that its 1Q16 sales could be slow due to the lack of new launches. Note that we are forecasting the group to lock in RM170.0m sales in FY16, representing a decline of 8% YoY.

Dividends

No dividend declared for 1Q16, as expected.

Key Results Highlights

YoY, 1Q16 core net profit jumped 76% to RM9.8m, underpinned by moderate revenue growth of 9% and vast improvement in margins. EBITDA margin saw an improvement of 10ppt to 32% due to higher revenue recognition from high margins products, i.e. industrial and commercial projects. Meanwhile, its manufacturing and trading division also saw improvement in revenue by 25% driven by higher export sales of concrete products.

QoQ, while revenue for 1Q16 declined 26% due to slower progressive billings from property development, its core net profit jumped significantly by 87% to RM9.8m due to reasons stated above and also a low base effect. To recap, CRESNDO incurred higher operating costs in 4Q15 due to a provision for doubtful debts for management and services division amounting to RM2.3m.

Outlook

Remain cautious with the property outlook in Johor given the “oversupply” concerns of high-rises in the region, coupled with tighter credit controls imposed by banks and the effect from the implementation of GST. Hence, managements are cautiously planning their launches, focusing mostly on landed residential (GDV: RM100.0m) and commercial/industrial (GDV: RM100.0m) properties in Bandar Cemerlang and Taman Perindustrian Cemerlang.

Change to Forecasts

No changes to our FY16-17E earnings at this juncture pending more clarity on sales data from management.

Its unbilled sales stand at only RM58.0m as of 1Q16 and will only provide the group another 3 - 5 months of visibility.

Rating

Maintain MARKET PERFORM

Valuation

Maintain TP of RM2.46 based on 61% to its FD RNAV of RM6.32 as we still like CRESNDO’s portfolio of product offerings in Johor that ranges from industrial, commercial and landed residential properties as compared to other developers that focus on high-rise developments in Johor. Hence, our discount rate of 61% for CRESNDO is the narrowest amongst Johor developers which ranges from 70% - 74%.

Risks to Our Call

Weaker-than-expected property sales.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environments

Source: Kenanga Research - 30 Jun 2015