Cresndo ... Apr12

TA Securities

Result Preview
Crescendo will release its 4QFY12 results this Friday and we expect the 4Q net profit to be in between RM16.2mn and RM20.2mn, bringing FY12 net profit to RM63mn- RM67mn. Based on a payout ratio of 40%, we expect the company to propose a final dividend of 6sen/share (4QFY11: 5sen/share), bringing FY12 dividend to 14sen/share.

Our projected FY12 net profit of RM65.1mn represents a 78% growth YoY. We attribute the robust performance to 1) double digit revenue growth across the business segments; and 2) margin expansion due to higher average selling price and better product mix.

Demand for industrial properties remains strong To recap, Crescendo’s new sales in 9MFY12 had hit the
RM200mn mark, surpassing its FY11’s total sales of RM159mn. We understand from the management that it
comprises mainly the sales of industrial units at Nusa Cemerlang Industrial Park (NCIP). We also gather that
manufacturers from Japan are planning to relocate their manufacturing facilities from Thailand to Johor due to 1) the recent flood in Thailand that has disrupted operations; 2) attractive pricing, which is significantly
lower than those in the Klang Valley and Singapore; 3) well-established infrastructures.

Management guided that NCIP should achieve a minimum RM100mn new sales consistently going forward.
However, we view it as a quite conservative projection, as the booming economic activities introduced under the Economic Transformation Program in Johor should continued to attract local and foreign industrialists to
invest in Johor. In addition, we note that industrial property in NCIP has registered a price hike of 37%, from
RM270psf in 2010 to RM370psf in 2012. All in, we estimate project NCIP to contribute new sales of
RM130mn – RM180mn for FY12-14.

Riding along the growth of Iskandar Malaysia As of December 2011, Iskandar Malaysia has achieved
a total investment of RM84.9bn, comprising 60% domestic investments and 40% foreign investments.
We believe foreign investors are now more confident about the business environment in Iskandar Malaysia
as the most of the basic infrastructures and amenities have already been put in place. Moreover, the
collaboration between Khazanah and Temasek to develop a RM3bn project in Iskandar Malaysia should
instill greater confidence among the Singaporean investors. Crescendo’s management also concurred
that it has received more queries about their NCIP industrial units from the Singaporean manufacturers
and investors. This is also evidenced by the buyer profile of the NCIP project, where Singaporean are the
main purchasers, representing 56% of the total value.

Currently, Crescendo has 3,016 acres of undeveloped landbank in Johor, with 1,696 acres of the landbank
located within the prime Iskandar Malaysia region – see Table 1 and Figure 1. Going forward, on top of
the sustainable sales derived from its industrial properties, we expect Crescendo’s prospects to remain intact, given it offers a wide range of products ranging from residential, commercial, and leisure properties, such as Bandar Cemerlang, CLSB and Ambok Resort to serve as future earnings growth driver.

1) Bandar Cemerlang
The group will kick start the first phase of its Bandar Cemerlang in Sep-12. Bandar Cemerlang is an
integrated township development measuring 1,390 acres located near Ulu Tiram. The first phase of the
project consist 303 units of double storey and cluster semi-detached houses worth total GDV of RM90mn.
We expect the affordable homes which are priced at RM250k-RM300k/unit should garner strong interest
among the first home buyers.

2) CLSB Land
Spanning across an area of 221.58 acres, this land will be developed into a water front development. It
is strategically located within Iskandar Malaysia and is only 18km away from Johor Bahru. Construction
work of main access to the development i.e the interchange connected to the Johor Bahru-Pasir
Gudang highway has completed. Reclaiming works have commenced and are expected to be completed
by the Jan-14. With a total estimated GDV of RM465mn, Crescendo targeted to launch the project in FY15.

3) Ambok Resort
This 794-acre of land has been zoned for a mixed development project. Located close to Pengerang,
Crescendo plans to start developing the land in 6 years’ time. Note that, Petronas will invest RM60bn in an
integrated downstream oil and gas complex in Pengerang, Johor which is targeted for completion by 2015. These new oil and gas industry facilities in Pengerang are expected to boost the population in the surrounding township from a current 20,000 to 40,000. As such, we expect Ambok Resort development to benefit from the rising population in the region.

An under-appreciated stock
Since we released Crescendo’s 3QFY12 result update report in Dec, its share price has advanced by 25%. However, we still see hefty potential upside as the stock is currently trading at 4.7x CY12 EPS and 0.6x NTA. We view the steep discount is unjustifiable against its earnings CAGR of 30.6% for FY11-14.
Crescendo has adopted a dividend policy to distribute at least 30% of its net profit as dividends. More importantly, it has been distributing more than 45% for the last 2 financial years. Based on yesterday closing price of RM1.84. Our projected DPS of 14sen would translate into a decent dividend yield of 7.6%, offering the highest dividend yield among the small-cap property stocks under our coverage

Forecast
No change to our FY12 earnings projection. However, we tweak our FY13-14 earnings estimates higher by 6-8% to factor in 1) the revised sales mix within Bandar Cemerlang development which is targeted for launch in Sep-12; and 2) increasing average selling price and faster take-up rate for its NCIP industrial properties. We now project Crescendo to secure new sales of RM303mn (from RM280mn previously) for FY13 and RM328mn (from RM305mn previously) for FY14.

Valuation and recommendation
We arrive at a new target price of RM2.67/share based on a CY12 target PER of 7x for the small cap
property stocks. We continue to like Crescendo due to 1) exposure to the resilient affordable housing
development; 2) strong opportunities to tap on the growth of Iskandar Malaysia; and 3) attractive
dividend yield of 7.6%. Given a total return of 45%, we maintain our Buy recommendation for Crescendo.