Eco World Development Group Bhd (Sept 20, 66.5 sen)

Maintain hold with a lower fair value of 70 sen: We cut our financial year ending Oct 31, 2019 (FY19), FY20 and FY21 earnings forecasts by 6%, 2% and 9% respectively to reflect the timing of revenue recognition.

Eco World Development Group Bhd’s (EcoWorld) nine months ended July 31, 2019 (9MFY19) net profit of RM122 million (+25.7% year-on-year [y-o-y]) came in below our and market expectations, at 69% of our and 64% of consensus full-year estimates.

Its 9MFY19 earnings were largely contributed by Eco Majestic, Eco Forest, Eco Sanctuary and Eco Sky in Klang Valley; Eco Botanic, Eco Spring, Eco Summer, Eco Business Park I, Eco Business Park II, Eco Tropics and Eco Business Park III in Iskandar Malaysia; and Eco Meadows and Eco Terraces in Penang.

Meanwhile, stronger results from joint-venture projects namely Eco Grandeur and Eco Business Park V, Eco Horizon, Eco Ardence and Bukit Bintang City Centre have also contributed to the group’s higher earnings.

EcoWorld recorded new sales of RM1.94 billion in the first 10 months in FY19 (RM2 billion in FY18) of which RM1.71 billion was secured in the first six months of the National Home Ownership Campaign which was launched in March.

EcoWorld’s 27%-associate Eco World International Bhd (EWI) registered a 9MFY19 net profit of RM68.7 million compared to a loss of RM23.7 million y-o-y.

This is mainly due to the completion and handover of two additional residential blocks at London City Island and the commencement of revenue and profit recognition of EcoWorld London’s built-to-rent sales.

We take note of the high gearing of 0.75 times while interest coverage is still manageable at 2.1 times.

Nonetheless, we believe the outlook for FY19 to FY20 remains stable supported by unbilled sales of RM5.9 billion and an increasing number of maturing projects in Malaysia and overseas. — AmInvestment Bank, Sept 20

This article first appeared in The Edge Financial Daily, on Sept 23, 2019.

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