Investment Highlights

• We maintain our HOLD recommendation on Eco World Development (EcoWorld) with an unchanged fair value of RM0.41 per share (Exhibit 2). We cut our FY20 earnings forecast by 18% to RM132.9mil to reflect the timing of recognition while retaining FY21–FY22 numbers.

• EcoWorld’s 1HFY20 net profit of RM54.9mil (-23.1% YoY) came in below expectations, making up 34% and 30% of ours and consensus full-year estimates. 1HFY20 revenue net earnings fell by 14.6% and 23.2% respectively mainly due to the impact of the movement control order (MCO) and Covid- 19 pandemic.

• 1HFY20 earnings were mainly 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, Johor; and (iii) Eco Meadows and Eco Terraces in Penang.

• On a positive note, EcoWorld recorded new sales of RM975mil as of 15 June 2020 (-2.5% YoY). On top of that, the company also received bookings worth RM600mil and working to convert them into sales over the next few months. Meanwhile, management is maintaining its sales target of RM2.2bil for FY20.

• Ecoworld is targeting to launch its new product “Duduk” in 4QFY2 via 2 new projects, i.e. Huni @ EcoArdence and Se.Ruang @ Eco Sanctuary, offering 1,000 sq ft semifurnished apartments priced below RM400K. These are targeted at the M40 group.

• The company is also planning to launch its new project, Eco Botanic 2 in Iskandar Malaysia that features landed homes priced RM500K–RM800K, targeting the M40 group in late 2020 / early 2021. To recap, EcoWorld acquired 200 acres of land for this project back in December 2019 at RM1.67bil.

• EcoWorld’s 27%-associate Eco World International (EWI) registered a 1HFY20 net profit of RM25.3mil (+134%). This is mainly due to completion and handover of a higher number of units sold to customers, as well as revenue and profit recognition of EcoWorld London’s Built-to-Rent (BtR) sales. EWI recorded new sales of RM808mil as of 15 June 2020.

• ECW’s gearing has improved from 70.1% to 67.5% since FY19 while interest coverage is still manageable at 1.8x. We cut our FY20 earnings forecast by 18% to RM132.9mil while retaining FY21–FY22 numbers. Nonetheless, we believe the long-term outlook remains stable, supported by unbilled sales of RM4.6bil and an increasing number of maturing projects in Malaysia and overseas. Maintain HOLD.

Source: AmInvest Research - 26 Jun 2020