Crescendo sees better earnings in FY18

KUALA LUMPUR (July 31): Crescendo Corp Bhd expects its property development division to lift earnings higher in the current financial year ending Jan 31, 2018 (FY18).

The group nearly quadrupled its net profit to RM70.31 million in FY17 from RM17.69 million in FY16, mainly due to higher property sales. Revenue jumped 30.7% to RM254.36 million from RM194.57 million for the previous year.

Crescendo chairman and managing director Gooi Seong Lim said the group had lined up several properties in Johor for launches, with a total gross development value (GDV) of some RM300 million in FY18.

They comprise 881 affordable housing units, together with 268 units of mid-market landed homes and 36 units of shop offices.

Crescendo has a higher GDV target for FY18, compared with the previous year’s GDV of RM288 million, which comprised eight units of mid-market landed homes, 70 units of various sizes of factories ranging from terrace to detached factories, and 248 units of affordable housing.

“Property sales [for FY18] should come in better than the FY17 numbers,” Gooi told The Edge Financial Daily in a telephone interview. Gooi is a major shareholder of Crescendo, with a 70.6% stake as at April 21, 2017.

While acknowledging that Johor’s property market sentiment had been soft, Gooi said Crescendo was not worried at all, adding that it was ever “positive and optimistic”.

“The major concern in regard to demand is primarily in the high-rise residential market segment. However, we are embarking on landed developments there comprising not only residential units but also factories and shop offices which enjoy better margins,” he added.

Gooi also noted that demand for medium-cost landed homes in Johor Bahru remains good because many Johoreans are employed in Singapore and hence are qualified for end-financing schemes.

Other factors underpinning his optimism about the southern state’s property market are a good rental market, prime location and improvement in the residential market.

“Property investors will also be keen to buy our tenanted industrial properties because they can get a high return on their investment,” Gooi said, adding that the rental market for industrial properties in Johor is expected to be “good as it can cater for industrialists who are currently not ready to enter into purchase commitments”.

Gooi added that an oversupply of high-rise developments, together with a weaker ringgit, have shifted demand to landed residential and more affordable properties.

“Demand for landed residential and more affordable properties will improve in view of better economic growth and active developments within Iskandar Malaysia,” he said.

For the first financial quarter ended April 30, 2017 (1QFY18), Crescendo’s net profit fell 32.5% to RM4.36 million from RM6.46 million a year ago, while revenue slipped 0.9% to RM47.85 million from RM48.29 million in 1QFY17. The group blamed the weaker first-quarter performance to a change in the sales mix with a higher proportion of residential property sales which have a lower margin compared with commercial and industrial properties.

Crescendo currently has unbilled sales of RM180 million which Gooi expects the group to recognise over the next two financial years.

“We do not expect the gearing to increase significantly in the near future, and our financial footing remains resilient in challenging times,” he said.

The group is also planning to launch four major projects consisting of residential units, factories, landed shoplots and affordable houses under the Johor affordable housing scheme with a combined GDV of RM457 million over FY18 and FY19.

Gooi said Crescendo’s land bank currently stands at 2,763 acres (1,118ha), of which 1,443 acres or 52% are located within a 75km radius of the Johor city centre.

“We are unable to estimate the total potential GDV that can be generated from the land, as a large part of the land bank development and building plans has not been finalised yet,” said Gooi.

However, the group has no plans to replenish its land bank for now.

On its construction business, Gooi said Crescendo has no extensive expansion plan to expand it further as it is seen as complementary to its property development business.

Gooi said around 80% of the group’s construction order book comes from in-house projects, while the remaining 20% is from external projects.

“Crescendo will be cautious in tendering external construction contracts and will be selective to reduce the cash-flow risk. The construction sector is currently very competitive and the margin has been trending down to [the] current 7% level compared with more than 10% in the past,” he added.

On Crescendo’s two educational institution businesses, namely the Crescendo International College (CIC) and the Crescendo-HELP International School (CHIS) in Ulu Tiram, Johor, Gooi said CIC saw its student population grow to a record 1,007 students in FY17, thanks to the college’s successful roll-outs of new diploma programmes.

“[The] student population at CIC is expected to grow by a single-digit percentage this year,” he said, adding that the purpose-built campus has the capacity to accommodate up to 2,000 students at any one time. “Crescendo has no immediate plans to upgrade CIC to university college status as yet.”

As for CHIS, a joint venture with local private education services provider HELP International Corp Bhd, Gooi said the school commenced its operation in February this year, with a student population numbering 200 currently.

“We expect the student intake to be higher in this September 2017 intake and the student population at the school is expected to be doubled as we move along,” he said, adding that Crescendo is also mulling to venture into the preschool education segment in the near future.

Crescendo shares closed four sen or 2.48% higher at RM1.65 last Friday, bringing a market capitalisation of RM366.2 million.

This article first appeared in The Edge Financial Daily, on July 31, 2017.

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