RESULTS

Within expectations. Eco World Development Group (EcoWorld) reported 2QFY18 net profit of RM34.5m (+43.0% qoq, +2.3% yoy) on revenue of RM498.7m (-11.5% qoq, -25.6% yoy). Cumulatively, 1HFY18 represents only 31% and 33% of our and consensus estimates respectively. We deem results within expectations as we expect stronger earnings in 2HFY18 as the group is preparing to hand over the first batch of its maiden international projects to customers (revenue is recognised upon handover for international projects).

On a yoy basis, 2QFY18 revenue and gross profit were down by 25.6% and 14.7% respectively as initial phases of majority of the projects (subsidiary level) have been handed over since 2QFY17. Core net profit for the quarter, however, improved 2.3% yoy, thanks to lower administrative and marketing expenses, in addition to profits reported by its JVs (strong growth from its Malaysian JVs).

STOCK IMPACT

Margins improved qoq and yoy. In 2QFY18, EBIT and net margin improved by 5.1ppt and 1.9ppt respectively, largely due to lower operating expenses (for EBIT) and profits posted by associates and JV (for net profit).

Achieved local sales of RM422m for the quarter. For 2QFY18, the group posted local sales of RM422m, lifting 1HFY18 local sales to RM923m (26% of sales target RM3.5b). Key sales driver came from the Klang Valley region, which includes Eco Ardence (RM233m), Eco Grandeur (RM101m), and Bukit Bintang City Centre (BBBC) development (RM85m). EcoWorld remained upbeat on delivering on its sales target for FY18 of RM3.5b. Eco World International (EWI) secured RM698m of sales from its existing projects for 7MFY18 - £103m from London and AUS$50m from Australia.

Unbilled sales stand tall at about RM5.9b. As of Apr 18, the company’s unbilled sales stood tall at about RM5.9b (implying 2.0x FY17 revenue cover), which would sustain earnings over the next two years. The bulk of its unbilled sales are from flagship developments Eco Sanctuary (RM492m), Eco Majestic (RM498m), Eco Ardence (RM587m) and Eco Grandeur (RM585m). Its 27%-owned associate company, Eco World International, has effective unbilled sales of RM1.6b which would be recognised progressively from 2HFY18 onwards.

RECOMMENDATION

Maintain HOLD and target price of RM1.18, based on 55% discount to RNAV of RM2.62/share. Our target price implies 13x FY19F PE. While the company’s fundamentals remain intact, we maintain our HOLD recommendation as the sector has limited re-rating catalysts. Entry price is RM1.12.

Source: UOB Kay Hian Research - 29 Jun 2018