Investment Highlights

• We maintain our HOLD recommendation on Eco World Development (EcoWorld) with an unchanged fair value of RM0.42 per share (Exhibit 2). We made no changes to our FY20–FY22 earnings forecasts.

• EcoWorld’s 1QFY20 net profit of RM33.5mil (+10.5% YoY) came in within expectations, despite making up only 18.5% of our full-year estimates. Historically, 1Q is generally a weaker quarter for EcoWorld.

• 1QFY20 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 & 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 and 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 RM305mil in 1QFY20 (RM230mil in 4MFY19). Management has set a sales target of RM2.0bil for FY20, which is RM700mil lower than FY19’s new sales of RM2.7bil after taking into consideration the movement control order (MCO) which has resulted in the closure of its sales galleries.

• EcoWorld’s 27%-associate Eco World International (EWI) registered a 1QFY20 net profit of RM5.2mil (-77%). This is mainly due to lower revenue recognition following the completion and handover of two additional residential blocks at London City Island. EWI recorded new sales of RM314mil (+161%) for 1QFY20. Management has set EWI’s sales target of RM2.2bil for FY20.

• ECW’s gearing has improved from 0.68x to 0.70x QoQ while interest coverage is still manageable at 1.8x. We made no changes to our FY20–FY22 earnings forecasts at this juncture. To recap, we have cut our FY20–FY22 earnings by 12.9%, 17.7% and 5.7% respectively in our previous sector report dated 19 March 2020 to reflect the impact of the MCO and its spillover effects to the economy which may result in lower sales and revenue recognition. Nonetheless, we believe the long-term outlook remains stable supported by unbilled sales of RM4.7bil and an increasing number of maturing projects in Malaysia and overseas. Maintain HOLD.

Source: AmInvest Research - 27 Mar 2020