We are downgrading Eco World Development to HOLD from BUY, with a post-acquisition ex-all fair value of RM1.77/share (vs. RM5.20/share pre-acquisition fair value earlier), based on a similar discount of 25% to our fullydiluted NAV of RM2.36/share, as share price have reached our ex-all fair value.

We make no changes to our earnings estimates. Eco World reported 1QFY15 results of RM3mil.

We deemed the results to be in line with expectations as stronger sales momentum is expected following the completion of the acquisition of eight development rights from Eco World Sdn Bhd (Eco World S/B). The corporate exercise was completed on8 January.

1Q numbers reflected 22 days of full contribution from the projects acquired from Eco World S/B. Revenue from its existing projects pre-acquisition were knocked off from the balance sheet under property development costs due to an accounting standard requirement.

We expect stronger profit recognition in the coming quarters (1Q unbilled sales: RM2.9bil) underpinned by the ramp-up of new launches.

These new project include Eco Sanctuary in Shah Alam (3Q), Eco Terraces (mid-year) in Penang, Eco Tropics (3Q) and Eco Business Park 3 (3Q) in Iskandar. Management remains committed to its sales target of RM3bil for FY15.

As it is, Eco World had achieved sales of RM181mil in February, bringing sales as at end-February to RM621mil. The company achieved sales of RM439mil for 1QFY15 – Klang Valley (51%) and Iskandar (49%).

No new projects were launched in 1Q. Nonetheless, its latest launch that took place was the subsequent phases of Eco Majestic’s terraces showed a strong take-up rate.

Eco Sanctuary is slated to be the group’s flagship luxury township. We believe that prices for its landed homes are likely to come in above RM1mil. Within the vicinity, the selling price for IJM Land’s Bandar RImbayu’s latest launch is already above RM800k.

Potential re-rating catalyst includes stronger-thanexpected new sales and continuous landbanking activities. Given a recapitalised balance sheet, Eco World must continue to demonstrate its ability to grow land acquisitions to drive NAV growth given that this is the primary valuation driver.

Source: AmeSecurities Research - 20 Mar 2015