Period

2Q15/1H15

Actual vs. Expectations

CRESBLD recorded core net profit of RM8.0m for 1H15 which was within our expectation, accounting for 51% of our full-year estimates of RM15.7m.

Dividends

No dividends declared for the quarter as expected.

Key Results Highlights

YoY, 1H15’s core net profit improved by 52% to RM8.0m, underpinned by a lower effective tax rate of 39.4% (previously, 44.3%) and a huge reduction in minority interest of 72%. The improvement in revenue was driven by better progressive billings on its construction and property division.

QoQ, its 2Q15 core net profit grew 27% to RM4.5m despite a decline in revenue (-7%), lifted by lower effective tax rate of 20.8% vis-à-vis 55.1% in 1Q15.

Outlook

Its outstanding external construction orderbook and unbilled sales which stand at c.RM250m and c.RM25m, respectively, provide at least 1–1.5 years of visibility.

Under current market circumstances, we do not rule out that CRESBLD may delay some of their earlier planned RM1.3b worth of launches for its property division to 2016. The RM1.3b of launches consists of flagship development The Bank @ Dang Wangi (GDV: RM1.0b) and also Hijauan Residence (previously known as 3 Stones, GDV: RM0.3b).

As for its construction division, management is still targeting more orderbook replenishments in 2H15 mostly similar to its previous replenishment (building job).

Change to Forecasts

No changes to our FY15-16E earnings as we have already pushed back a substantial amount of property launches to next year.

Rating

Maintain MARKET PERFORM

Valuation

We maintain our MARKET PERFORM call with a lower Target Price of RM1.10 (previously, RM1.27) as we switch our valuation methodology to applying its 5-year FWD average of 0.44x on FY16E BV/share. This is because we are turning more cautious on developers with hefty balance sheet. Nonetheless, the successful launch of its Transit- Oriented-Development project will still be a major catalyst for the company, although we qualify that a healthier property sector environment is a prerequisite.

Risks to Our Call

Weaker-than-expected property sales and construction orderbook replenishment.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environments.

Source: Kenanga Research - 25 Aug 2015