Period

2Q16/1H16

Actual vs. Expectations

1H16 core net profit of RM12.8m came in disappointingly as it makes up only 28% of our full-year estimates of RM44.5m. The gap was mainly due to slower-thanexpected billing progress from its property development and construction division, especially with sales remaining weak.

While there are no sales data available for 2Q16 at this juncture, we reckon that it would be similarly disappointing as it only closed RM4.0m sales in 1Q16 vs. our full-year estimates of RM170m due to the lack of launches as it remains cautious on the property market in Johor.

Dividends

Single tier dividend of 2.0 sen was declared, below our fullyear expectations of 7.8 sen.

Key Results Highlights

YoY, 1H16 core net profit saw a sharp fall by 36% to RM12.8m following the decline in revenue (-20%). The decline in revenue was mainly due to much slower billing progress from its property development and construction segment whereby property sales remains extremely slow due to the lack of new launches. That said, its financing cost has also risen by 112% to RM2.6m probably on more financing for working capital purposes.

QoQ, 2Q16 core net profit of RM3.1m saw an sharper decline of 68% due mainly to the decrease in revenue (- 27%) coupled with compression on its EBITDA margins of 20.2% (-12.2ppt). While the reasons for the decline in revenue is similar to the above, the compression in EBITDA margin was due to the lack of industrial property inventory sales, which generally commands superior margins as compared to residential and commercial properties.

Outlook

We are of the view that the near-to-mid-term outlook for CRESNDO remains unexciting due to its reliant on industrial property sales. Whilst the RM has weakened, domestic confidence issues are keeping industrial property investors on the sidelines. However, management are still cautiously planning their launches that focus on affordable landed residential (GDV: RM100.0m) and commercial/industrial (GDV: RM100.0m) properties in Bandar Cemerlang and Taman Perindustrian Cemerlang.

Change to Forecasts

Following the 68%-55% cut in our FY16-17E sales to RM55m-RM78, we slashed our core net profits by 57%- 55%.

Its unbilled sales stand at only RM40.0m as of 2Q16 and will only provide the group another 3-5 months of earnings visibility.

Rating

Downgrade to UNDERPERFORM

Valuation

Following the disappointment in earnings and sales, we are downgrading CRESNDO to UNDERPERFORM with a lower TP of RM1.90, (previously, MP, TP: RM2.46) based on 70% (historical peak) to its FD RNAV of RM6.32. Furthermore, it is trading at 23.9x FY16E PER which is at a premium to its small-mid cap peers’ average of 8.2x.

Risks

Stronger-than-expected property sales.

Lower-than-expected sales and administrative costs.

Source: Kenanga Research - 30 Sep 2015