Investment Highlights

• We maintain our HOLD recommendation on Eco World Development (EcoWorld) with a lower fair value of RM0.70 (from RM0.71) per share (Exhibit 2). We cut our FY19, FY20 and FY21 earnings forecasts by 6%, 2% and 9% respectively to reflect the timing of revenue recognition.

• EcoWorld’s 9MFY19 net profit of RM122.0mil (+25.7% YoY) came in below our and market expectations, at 69% of ours and 64% of consensus full-year estimates.

• 9MFY19 earnings were largely contributed by: (i) Eco Majestic, Eco Forest, Eco Sanctuary and Eco Sky in 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 JV projects namely Eco Grandeur & Eco Business Park V, Eco Horizon, Eco Ardence and Bukit Bintang City Centre (BBCC) have also contributed to the group’s higher earnings.

• EcoWorld recorded new sales of RM1.94bil in the first 10 months in FY19 (RM2.0bil in FY18) of which RM1.71bil was secured in the first 6 months of the National Home Ownership Campaign (NHOC) which was launched in March 2019.

• EcoWorld’s 27%-associate Eco World International (EWI) registered a 9MFY19 net profit of RM68.7mil compared with a loss of RM23.7mil YoY. 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 builtto-rent (BtR) sales. Meanwhile, two residential blocks in London City Island and Embassy Gardens are expected to commence delivery to customers in 4QFY19. Additionally, EWI expects to hand over Wardian London in London as well as West Village in Sydney and Yarra One in Melbourne in FY2020.

• We take note of the high gearing of 0.75x while interest coverage is still manageable at 2.1x. Nonetheless, we believe the outlook for FY19–FY20 remains stable supported by unbilled sales of RM5.9bil and an increasing number of maturing projects in Malaysia and overseas.

Source: AmInvest Research - 20 Sept 2019