Eco World Development Group Bhd (Dec 13, 74 sen)
Maintain hold with a higher fair value (FV) of 73 sen: Eco World Development Bhd’s (EcoWorld) financial year 2019’s (FY19) net profit of RM203.4 million (+22.8% year-on-year [y-o-y]) came in above expectations, at 118% of ours and 113% of consensus full-year estimates.
FY19 earnings were largely contributed by: i) Eco Majestic, Eco Forest, Eco Sanctuary and Eco Sky in the Klang Valley; ii) 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 iii) 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 RM2.7 billion in FY19 (RM3.1 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 will be introducing a new range of homes priced between RM300,000 and RM450,000 for FY20.
EcoWorld’s 27%-associate Eco World International Bhd (EWI) registered a FY19 net profit of RM187 million compared to a loss of RM11.2 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.
EWI recorded new sales of RM1.1 billion for FY19 and the company is maintaining its combined two-year sales target of RM6 billion for FY19 and FY20. Management is confident of achieving its target given a sizeable handover of properties in both the UK and Australia.
EcoWorld’s gearing has improved from 0.75 times to 0.70 times y-o-y while interest coverage is still manageable at 2.6 times. Nonetheless, we believe the outlook for FY19 to FY21 remains stable, supported by unbilled sales of RM3.8 billion for EcoWorld Malaysia and RM1.3 billion for EWI and an increasing number of maturing projects in Malaysia and overseas.
We maintain our “hold” recommendation on EcoWorld with a higher FV of 73 sen (from 70 sen) per share. We revise our FY20 and FY21 earnings forecasts upwards by 5% and 3% respectively to reflect the timing of revenue recognition. We introduce our FY22 earnings forecast at RM213.2 million. — AmInvestment Bank, Dec 13
This article first appeared in The Edge Financial Daily, on Dec 16, 2019.