Eco World Development’s (ECW) 3QFY21 net profit came in RM35.1m (-1.9% YoY, -17.0% QoQ) which was below our and consensus expectations as pandemic-related restrictions distracted progress billings and sales (especially overseas projects). YTD, group net profit of RM139.9m (+59.2% YoY) only constituted c.63% and c.69% of our and consensus full year estimates. We understand that work progress was affected by the vaccination drive especially in August to ensure that all staff and site workers (over 8,000 individuals) are inoculated. As such, we cut out FY21/FY22/FY23 earnings by 21%/4%/4% after revising our billing assumptions. Positively, the Group has already exceeded its FY21 sales target of RM2.88bn, after securing RM3.11bn in 10 months. Group unbilled sales as at 31 August 2021 remains high at RM4.1bn with RM3.7bn from its Malaysian projects and the remaining from EcoWorld International. Maintain Outperform call and a TP of RM0.98, derived based on c.65% discount to our RNAV estimates.

• Sales momentum still encouraging despite headwinds. ECW recorded RM2.87bn sales secured till 3QFY21. By 31 August 2021, we understand that Group sales had reached RM3.11bn, which has already surpassed its full year target for FY21 of RM2.88bn. The sales achieved in 10 months of FY21 are also 35% higher than the RM2.3bn sales achieved in FY20. Again, the bulk of the sales were driven by projects in the Klang Valley (c.59% of total sales), while Iskandar Malaysia contributed c.31% with the remaining c.10% from Penang.

• Unbilled sales steady at RM4.1bn. Group’s earnings visibility remains healthy with unbilled sales still hovering at the c.RM4bn mark. Separately, its balance sheet continues to strengthen with net gearing levels falling from c.0.62x in FY20 to 0.51x in 3QFY21, with total borrowings lowered from RM3.32bn as at 31 October 2020 to RM2.99bn as at 31 July 2021. Elsewhere, EcoWorld International achieved RM338m sales in 3QFY21 and a further RM81m in August 2021, bringing year-to-date sales to RM1.04bn. We understand that sales are affected by closed borders due to the pandemic, though we are hopeful that easing of lockdowns in tandem with rising vaccination rates could help boost sales in coming months.

Source: PublicInvest Research - 20 Sept 2021