CRESNDO’s 9M17 CNP of RM21.5m came in above expectations, accounting for 84% of our full-year estimates due to better-than-expected margins. Property sales of c.RM220m was also ahead of our FY17 target of RM197m. No dividends declared as expected. Raised FY17-18E CNP by 10% and 6%, respectively. Maintain MARKET PERFORM with a higher Target Price of RM1.68 (previously, RM1.60).

Above expectations. 9M17 CNP of RM21.5m came in above our expectation, making up 84% of our full-year estimate. The positive variance is mainly driven by higher-than-expected margins as compared to our assumptions due to the contribution from better priced properties, which command better margins, i.e. commercial. Sales of c.RM220m also came above our FY17E target of RM197m driven by its Bandar Cemerlang project. No dividends declared as expected.

Results highlight. 9M17 CNP saw an impressive growth of 48% underpinned by the 28% improvements in revenue, driven by the billings of its new sales, which is higher than last year coupled with the decrease in minority interest contribution (-37%).

QoQ, 3Q17 CNP improved by 13% despite registering a magnificent growth in revenue (+47%), due to the compression in EBITDA margins due to the sale of lower margin products and decline in construction margins.

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 concentration in the Johor region, while the Group remains cautious on launches going forward. Whilst the MYR remains weak, domestic confidence issues are keeping industrial property investors on the side-lines.

Raising FY18 estimates. Post results, we raised our FY17-18E sales to RM235m and RM221m (previously, RM197m and RM214m), respectively. Subsequently, we also raised our FY17-18E CNP by 10% and 6%, respectively, after the adjustment in our sales target and also fine tuning in our margin assumptions. Its unbilled sales currently stand at RM171.0m, which provides earnings visibility for at least a year.

Maintain MARKET PERFORM. Despite its stellar performance, we are still keeping our MARKET PERFORM call on CRENSDO. However, we raised our Target Price for CRENSDO to RM1.68 (previously, RM1.60) after we fine tuned our discount to FD RNAV of RM6.32 to 73% (previously 75%), given CRESNDO’s ability to position itself as an affordable property player which has garnered strong interests for serious buyers of reasonably priced landed properties in Johor despite a soft market environment. However, it is still trading at a premium at 10.1x FY18E PER versus its peers that are trading at an average of 6.0x PER, while its dividend yield of only 3.9% is also not as compelling compared to peers’ average of 5.6%.

Source: Kenanga Research - 30 Dec 2016