FY18 CNP of RM34.9m came in below expectations, making up 82% of our full-year estimate. Full-year property sales of RM271.2m came in higher compared to our target of RM221.0m. A 3.0 sen dividend was declared, bringing the full-year dividend to 6.0 sen which is inline. Lowered FY19E CNP by 28%, introduces FY20E CNP of RM32.5m. Maintain MARKET PERFORM with a lower Target Price of RM1.30 (from RM1.50).

Below expectation. FY18 CNP of RM34.9m came in below expectations, making up 82% of our full-year estimate. The negative variance is due to lower-than-expected margin arising from higher mix of low-cost housing products compared to industrial and commercial ones. Positively, full-year property sales of RM271.2m came in higher compared to our target of RM221.0m. A 3.0 sen dividend was declared, bringing the full-year dividend to 6.0 sen, in line with our full-year target.

Results highlight. FY18 CNP grew 21%, underpinned by: (i) revenue growth of 9%, and (ii) improvement in EBITDA margin by 3ppt from 21%. The improvements in revenue and margins are mainly driven by higher properties sales compounded by change of sales mix with higher proportion of industrial properties sales that generally commands higher margin. QoQ wise, 4Q18 CNP registered a sharp plunge of 77% despite flattish revenue as it saw major compression in EBITDA margin to 13% (-12ppt) mainly due to higher proportion of sales of affordable housing, which has extremely low margins.

Outlook. Currently, its unbilled sales stand at RM190.5m providing less than one year’s visibility. Going forward, CRENSDO is planning to launch 102 units of mid-market landed residential properties at Bandar Cemerlang, 24 units of shop offices at Bandar Cemerlang as well as 426 units of affordable housing at Bandar Cemerlang and Tanjung Senibong with a combined GDV of >RM100.0m in the medium-to-near term.

Lowers FY19E earnings. Post results, we reduce our FY19E CNP by 28% after factoring in a lower margin arising from a higher component of low-cost housing and also introduce our FY20E of RM32.5m.

Maintain MARKET PERFORM. Post results, we reiterate our MARKET PERFORM call on the stock with a lower Target Price of RM1.30 (from RM1.50) based on a higher RNAV discount of 79% (previously, 76%) which is at its historical high levels. We believe such valuations levels are fair considering its full exposure to Johor.

Risks to our call include: lower-than-expected margins/property sales, higher-than-expected administrative costs, negative real estate policies, and tighter lending environment.

Source: Kenanga Research - 30 Mar 2018