Crescendo Corporation Bhd - Slow Start, Stronger Quarters Ahead

Author: kiasutrader   |   Publish date: Fri, 27 Jun 12:10

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Period  1Q15
Actual vs. Expectations 1Q15 core earnings of RM5.5m were weaker than expected, making up only 6% each of FY15E street consensus and our estimates. The lower-than expected earnings are mainly due to the timing differences of recognition and we expect earnings to pick up pace moving into 2Q15 onwards. In fact, we expect to see more recognition of inventory sales from Nusa Cemerlang Industrial Park (NCIP) next quarter.
 Positively, 1Q15 sales of RM77m were slightly ahead of our FY15 sales estimates of RM210m, driven by its industrial properties (NCIP).
Dividends  No dividends declared, as expected.
Key Results Highlights YoY, 1Q15 core earnings declined by 69% to RM5.5m underpinned by the 28% decrease in revenue from RM71.0m to RM51.2m. The main drag was due to lower contribution from its property division, which saw a 38% decrease in revenue. Its overall EBITDA margin also saw a reduction from 37% to 22% mainly due to lower sales in industrial properties, which contributed higher margin to the group as compared to its commercial and residential properties.
 QoQ, while CRESNDO’s saw a 62% slump in 1Q15 earnings to RM5.5m due to the reasons above, its management and services division saw a sharp improvement in pre-tax profit from RM0.7m to RM3.6m (+446%) despite flattish revenue of RM4m as its margins improved by 69ppt to 86% due to lower operating expenses.
Outlook  We will be expecting CRESNDO to start launching double-storey and three-storey houses in its Bandar Cemerlang (GDV: RM3.0b) in FY15, and also more aggressive sales of its Nusa Cemerlang Industrial Park inventories following the launch of a neighbouring project, Nusajaya Techpark by Acendas and UEM Sunrise recently.
Change to Forecasts We are maintaining our FY15-16E core earnings, pending our meeting with management.
Rating Maintain OUTPERFORM
Valuation  Our TP is maintained RM3.15 with an unchanged FD RNAV discount of 45%, which is at historical average levels. We still believe its longer term outlook is still intact given that the new earnings driver, Bandar Cemerlang, will focus on landed residentials at affordable pricing while its apartment JV project in NCIP will still be able to sell well as it could be priced more competitively than its surrounding projects, thanks to lower land cost. Current dividend yield of 5.3% is more attractive against mid-cap peers of 4.3%.
Risks to Our Call Unable to meet its sales target.
 Sector risks, including further negative policies.