Investment Highlights

• We maintain our HOLD recommendation on Eco World Development (EcoWorld) with a higher fair value of RM0.73 (from RM0.70) per share (Exhibit 2). 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 RM213.2mil.

• EcoWorld’s FY19 net profit of RM203.4mil (+22.8% YoY) 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 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 RM2.7bil in FY19 (RM3.1bil 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 will be introducing a new range of homes priced RM300K– RM450K for FY20.

• EcoWorld’s 27%-associate Eco World International (EWI) registered a FY19 net profit of RM187.0mil compared with a loss of RM11.2mil 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 built-to-rent (BtR) sales. EWI recorded new sales of RM1.1bil for FY19 and the company is maintaining its combined 2-year sales target of RM6bil for FY2019 and FY2020. 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 0.75x to 0.70x YoY while interest coverage is still manageable at 2.6x. Nonetheless, we believe the outlook for FY19–FY21 remains stable, supported by unbilled sales of RM3.8bil for EcoWorld Malaysia and RM1.3bil for EWI and an increasing number of maturing projects in Malaysia and overseas. Maintain HOLD.

Source: AmInvest Research - 13 Dec 2019