Period

4Q16/FY16

Actual vs. Expectations

FY16 core net profit of RM17.8m came below our expectation at 93% of our full-year forecast of RM19.1m. This is mainly due to higher financing cost (+80% YoY) for working capital and administrative expenses, while topline was well within expectation.

FY16 sales of RM78m exceeded our full-year estimate of RM55m (142%) from strong sales at Bandar Cemerlang in 4Q16. However, this is lower than FY15 sales of RM185m (-52%) as the Group scaled back on launches due to its cautious outlook on the Johor property market.

Dividends

Positively, CRESNDO proposed a single-tier dividend of 3.0 sen for 4Q16, bringing FY16 total dividend to 5.0 sen (2.9% yield). This is above our expectation due to a higher payout ratio of 64% (vs. ours of 40%).

Key Results Highlights

YoY-Ytd, FY16 core net profit saw a steep decline of 59% in tandem with a declining topline (-28%), due to slower billing progress from its property development and construction segment in FY16, while property sales was weak due to the lack of, and delay in new launches at Bandar Cemerlang (launched in Oct-15). Additionally (i) higher financing cost (+78%), likely on financing for working capital purposes, (ii) higher percentage of effective tax rate, and (iii) higher minority interest (+32%) dragged down core net profit and net margins to 9.2% (from 16.2%).

QoQ, 4Q16 topline increased by 68% on mostly on higher property sales, notably from Bandar Cemerlang. However, higher cost (+68%) from administration expenses and higher financing cost (+35%) lowered PBT margins by 4.2ppt to 13.9%. Despite that, core net profit was still up by 95% to RM3.3m aided by lower contribution of minority interest (-45%).

Outlook

We are of the view that the near-to-mid-term outlook for CRESNDO remains unexciting due to its exposure in industrial property and projects concentrated in the Johor region. Whilst the MYR has weakened, domestic confidence issues are keeping industrial property investors on the sidelines.

Expecting sales of RM77 in FY17E (refer overleaf).

Change to Forecasts

We make no changes to our earnings estimates for now (refer overleaf).

Its unbilled sales stood at RM78m as of 4Q16, providing 6-8 months of earnings visibility.

Rating

Maintain UNDERPERFORM

Valuation

Maintain CALL and TP of RM1.74 based on 72% discount (historical peak) to its FD RNAV of RM6.32.

The group has been delaying launches which is not expected to pick up significantly in FY17, and this has been affecting earnings and causing net yields to remain low at (2.9%) currently vs. HUAYANG (7.1%) and MATRIX (7.3%)

Risks to Our Call

Stronger-than-expected property sales.

Lower-than-expected sales and administrative costs.

Source: Kenanga Research - 31 Mar 2016