Investment Highlights

• We downgrade Eco World Development (Ecoworld) to a HOLD (from BUY) with a revised fair value of RM1.28 per share (from RM1.90 previously) (Exhibit 1).

• We revised our FY18 and FY19 earnings downwards by 34.7% and 34.4% to RM154.0mil and RM178.4mil while introducing FY20 earnings at RM188.9mil.

• Presently, Ecoworld has numerous ongoing projects with remaining landbank of 4,983.1 acres bearing a total GDV of RM72.6bil which provide long-term earnings visibility and will drive the company’s growth going forward.

• In the central region, Ecoworld has several projects which include Eco Grandeur @ Puncak Alam, Selangor (mixed township – remaining GDV RM11.4bil), Eco Sanctuary @ Kota Kemuning (residential township – remaining GDV RM6.5bil), Eco Majestic @ Semenyih (residential township – remaining GDV RM8.7bil), Eco Ardence @ Shah Alam (residential township – remaining GDV RM7.3bil) and Bukit Bintang City Centre (BBCC) (mixed high-rise –remaining GDV RM7.4bil).

• Meanwhile, in the northern region, ongoing key projects are the Eco Horizon @ Batu Kawan, Penang mainland (landed residential – remaining GDV RM7.4bil). For the southern region, it has several notable projects located at Iskandar Malaysia, namely Eco Botanic (mixed township – remaining GDV RM2.2bil), Eco Spring & Eco Summer (mixed township – remaining GDV RM4.3bil) and Eco Business Park I-III (landed industrial – remaining GDV RM7.6bil).

• Earnings visibility in the near term is good with unbilled sales of RM5.9bil, which will be progressively recognized over FY19-FY21.

• Nonetheless, we remained cautious on the property sector due to: (1) the generally still elevated home prices; (2) the low loan-to-value (LTV) offered by banks; and (3) house buyers' inability to qualify for a home mortgage due to their already high debt service ratios (DSR). In addition, the still subdued consumer sentiment against a backdrop of rising cost of living and elevated household debts is holding consumers back from committing themselves to the purchase of big-ticket items like a house. Nevertheless, we do see a bright spot in the affordable segment.

Source: AmInvest Research - 27 Aug 2018