1Q18 CNP of RM4.4m came in below expectation, accounting for 13% of our full-year estimate, due to lower- than-expected margins and progressive billings. No dividends declared as expected. Positively, 1Q18 sales of RM54.0m are on track to meet our full–year target of RM221.0m. Reduced FY18-19E CNP by 9% each. Maintain MARKET PERFORM with an unchanged Target Price of RM1.70.

A weak start. 1Q18 CNP of RM4.4m came in below expectation, accounting for 13% of our full-year estimate, due to lower-than- expected margins and progressive billings. No dividends declared as expected. Positively, while there is no guidance on their 1Q18 sales from management, we estimate it to be around RM54.0m, on track to meet our full–year target of RM221.0m.

Results highlight. 1Q18 CNP came off by 32%, YoY despite a mild decline in revenue (-1%, YoY), due to compression in EBITDA margin that fell by 6ppt to 21%. The compression in margin is largely due to higher proportion of residential properties sales, which have lower margin, compared to commercial and industrial properties. QoQ wise, 1Q18 CNP fell by 41% despite a higher EBITDA margin of 21% vis-à- vis 14% in 4Q17 as its 4Q17 CNP was lifted by positive tax returns of RM4.1m.

Outlook. Going forward, CRENSDO is looking to launch 881 units of affordable housing at Bandar Cemerlang, Tanjung Senibong and Taman Dato’ Chellam, 268 units of mid-market landed residential properties and 36 units of shop at Bandar Cemerlang, with total GDV of more than RM300.0m. Unbilled sales stands at RM180.0m, providing at least a year’s visibility.

Lowering FY18-19E earnings. Post results, we reduced our FY18-19E CNP by 9%, respectively, after we factored in lower margin assumption for its property development division due to higher mix of residential products over commercial/industrial products.

Maintain MARKET PERFORM. We are keeping our MARKET PERFORM call on CRENSDO with an unchanged Target Price of RM1.70 based on our 73% discount to FD RNAV of RM6.32, which we believe is fair given that it is still pegged below its average historical levels.

While the property market remains challenging especially in Johor, CRESNDO has demonstrated 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, its Fwd. PER are almost on par with some of the big-cap developers which means that earnings levels need to be elevated before further re-rating can take place.

Source: Kenanga Research - 30 Jun 2017