CRESNDO ... Oct2011

Crescendo Corporation Berhad - By TA Securities.

Crescendo’s 1HFY12 revenue and net profit accounted for about 51% and 57% of our full-year forecast respectively. We consider this within expectations as we expect a slowdown in construction progress in 3Q in conjunction with Hari Raya break.

YoY, Crescendo’s 2QFY12 net profit jumped 60.5% driven by: 1) 36.4% increase in revenue; 2) 2.1ppt increase in the PBT margin; and 3) lower MI. Stronger margin is largely attributable to better product mix and decline in finance costs.

Sequentially, Crescendo’s earnings grew by 40.3% on the back of strong revenue growth in all divisions. However, property development and construction division, and manufacturing and trading division have seen 3ppt and 2ppt margin compression respectively, as a result of higher building material and labour cost.

2. Recent Developments
We estimate Crescendo to record new sales of RM90mn for 6MFY12, mainly from the sales of
industrial units at Nusa Cemerlang Indutrial Park. Unbilled sales were approximately RM128mn as at
July-11, which is 1.2x the revenue recognized from the property division in FY11.

3. Earnings Outlook
No change to our earnings projections as we anticipate a modest slowdown in the progress billing
in 2HFY12. We believe market uncertainties may dampen corporate confidence and thus put expansion
plans on hold. Nonetheless, we expect Crescendo’s future earnings growth to be driven by 1) current
outstanding unbilled sales of RM128mn; 2) projected sales of RM176-245mn for FY12-13; 3) ample
landbank of more than 3,000 acres for future development.

During the quarter under review, Crescendo declared a gross interim dividend of 5 sen (2QFY11:
4 sen). Based on a 40% payout ratio, we expect crescendo will declare a final dividend of 6 sen and
maintain our dividend projection of 11 sen for FY12.

4. Competitive Analysis
Refer to the table above, Crescendo scores lower against KSL in term of PE multiple. Also, it is trading
at a low P/NTA multiples, despite offering higher yield. This indicates that Crescendo is undervalued
against its peers.

5. Key Investment Risk
High concentrated risks drawing from its exposure to the state of development of Johor or Iskandar Malaysia. Note that all Crescendo’s property projects are in Johor. Also, liquidity of the stock can be a concern given a free float of 34%.

6. Valuation
We continue to value Crescendo base on an unchanged PER of 6x, which is at a discount to our sector PE of 10x for the mid-cap property stocks. This is to factor in the concentrated risks in relation to its sole exposures to the property development in Johor.

7. Recommendation
We maintain our target price of RM1.84/share. We continue to like Crescendo for its 1) unbilled sales of
RM128mn provides medium term earnings visibility; and 2) attractive dividend yield at 8.2%. Given the potential upside of 37%, we reiterate our Buy recommendation on Crescendo.