CRESCENDO CORPORATION BHD
PROPERTY stocks may under-perform in the near to medium term, following cooling measures, weak consumer confidence and oversupply concerns, including in Iskandar Malaysia (IM). Nevertheless, Crescendo (Fundamental: 2.7/3, Valuation: 2.4/3) should be a comparatively safe option given its low gearing (of 13.3%) as well as focus on the more resilient industrial and affordable landed properties. In particular, we like its higher than market average yields.

Crescendo cut dividends to 12 sen per share for FYJan2015, from 16 sen in FY2014 on the back of lower normalised earnings — but still giving a decent yield of 5.3%. The payout of 23% of net profit (which included revaluation gains), we believe is sustainable going forward. The stock trades ex-entitlement for final dividend of 5 sen per share on August 10.

Based, primarily, in Johor, Crescendo specializes in industrial properties, as well as township development. It owns a large landbank of 2,921 acres in Johor, of which 54.8% is within IM. Importantly, about two-third of its gross development value (GDV) is industrial properties, where demand is comparatively strong. 

Its flagship development is the 527-acres Nusa Cemerlang Industrial Park (NCIP) in Nusajaya, Johor, of which Singapore SMEs accounted for 56% of its sales. Another industrial park, the 600-acre Taman Perindustrian Cemerlang (TPC), is also within IM. 

Crescendo plans to launch detached and semi-detached factories in TPC with estimated GDV of RM400 million over the next two years. The developer also retains some of its industrial properties for rental income.

Notably, Crescendo’s assets were acquired or last revalued between 1996 and 2006. Land prices in IM have risen 2-3 folds in the last few years alone. In FY2015, development land, property, plant and equipment totalled RM639.75 million on its books. Simplistically, dividing this by its landbank implies an average land cost of just RM5.03 psf. And the stock is trading at 39% discount to its book value.

This article first appeared in The Edge Financial Daily, on June 15, 2015.