Crescendo’s 9MFY16 net profit within expectations

Crescendo Corp Bhd
(Dec 31, RM1.78)
Maintain underperform with a lower target price (TP) of RM1.74: The company’s nine-month core net profit for the year ended Oct 31, 2015 (9MFY16) of RM14.5 million came in well within expectations. However, this is after we cut our earnings forecast by 68% in the second quarter of 2016 due to slower-than-expected billing progress from its property development and construction division, and weak sales.

The company’s 9MFY16 sales of RM44 million are well on track to meet our full-year estimates of RM55 million (80%). Year-on-year (y-o-y) sales have also declined significantly from RM182 million recorded in 9MFY15, due to the lack of launches as the group remains cautious about the Johor property market.

For y-o-y basis, year to date, its 9MFY16 core net profit saw a steep decline of 62% to RM14.5 million in tandem with a declining top line (-31%), which was due to slower billing progress from its property development and construction segment in 2015, while property sales remain weak due to the lack of, and delay in new launches at Bandar Cemerlang (recently launched in October 2015).

Additionally, a (i) higher financing cost (+91%), likely on financing for working capital purposes, (ii) higher percentage of effective tax rate, and (iii) higher contribution of minority interest (+15%) dragged down core net profit and net margins to 10.9% (from 19.8%).

Quarter-on-quarter (q-o-q), third quarter of financial year 2016 (3QFY16) saw a declining top line (-11%) due to similar reasons mentioned above. Despite improvements in gross margins by +3.8 percentage points (ppts) to 29.4%, and pre-tax margins by +2.7ppt to 18.1%, core net profit fell by 45% to RM1.7 million, making it the weakest quarter year to date, due to a declining top line, coupled with a higher taxation (+14%) and higher contribution of minority interest (+150%). 

We maintain “call”, but we lower our TP to RM1.74 (from RM1.90). The group’s main driver, Nusa Cemerlang Industrial Park, is seeing significantly slower sales as potential buyers adopt a wait-and-see stance.

This article was first published in The Edge Financial Daily, Jan 4, 2015. Tap here to subscribe for your personal copy.