Investment Highlights

• We maintain our HOLD recommendation on Eco World Development (EcoWorld) with an unchanged fair value of RM1.13 per share (Exhibit 2). We made no changes to our FY19-20 earnings forecasts and introduced FY21 earnings forecasts at RM203.0mil.

• EcoWorld chalked up an FY18 net profit of RM165.6mil (+22.3% YoY). Excluding forex translation differences, its core net profit of RM143.9mil (+27.3% YoY) is within our expectation but missed consensus by 10%.

• EcoWorld recorded new sales of RM3.1bil, more than double the RM0.9bil posted in the first 6 months ended 30 April 2018. This is mainly contributed by its projects in the Klang Valley (RM2.0bil), followed by those in Iskandar Malaysia (RM939.5mil), and the remaining RM209.4mil in Penang.

• We believe the outlook for FY19 remains stable supported by a record-high unbilled sales of RM6.4bil (RM4.5bil QoQ) and an increasing number of maturing projects in Malaysia.

• EcoWorld’s 27%-associate Eco World International (EWI) registered its FY18 net profit at RM35.5mil compared with a loss of RMRM87.5mil in FY18. This is mainly due to the completion and delivery of London City Island and Embassy Gardens in the UK.

• EcoWorld’s share of EWI’s profit in 4QFY18 amounted to RM18.9mil, compared with a share of loss of RM8.8mil in 4QFY17. We expect EWI to remain positive in FY19 with revenue recognitions from the aforementioned completed units and strong unbilled sales of RM6.6bil (vs. YoY’s RM5.8bil).

• We have a HOLD recommendation on EcoWorld because of: 1) limited upside on the share price; 2) a generally weak investor sentiment on the property sector, particularly larger developers; 3) demand for local properties remain sluggish; and 4) risk of worsening market conditions in the UK (until Brexit concerns are resolved).

• We may upgrade the stock to BUY if: 1) there’s a sharp retracement in share prices while fundamentals persist; 2) a general improvement in demand of local properties; and 3) major catalysts (eg M&A, sales/earnings surprises etc.)

Source: AmInvest Research - 14 Dec 2018