• 9MFY10/22 results were worse than expectations due to additional costs recognised for built-to-rent (BTR) projects.
• 10MFY22 new property sales came in higher yoy at RM1.7bn, accounting for 85% of its FY22F new property sales target of RM2bn. 
• We expect core net loss to narrow in 4QFY22F, supported by the handover of units in EcoWorld-London projects. TP revised to RM0.35.

Key results highlights

Eco World International (EWI) posted 9MFY10/22 core net loss of RM106m (excluding RM4m forex movement and RM36m impairment loss on investment in JV), wider than our/Bloomberg consensus full-year core net loss forecasts of RM6m/RM34m. The underperformance was mainly attributed to additional costs recognised for EcoWorldLondon’s built-to-rent (BTR) projects, due to prolongation of the construction period. 3QFY22 core net loss came in at RM52m (vs. core net profit of RM12m in 3QFY21), dragged down by fewer property handovers (in Australia and the UK); 3QFY22 core net loss widened 37% qoq dragged down by lower BTR project margins due to higher costs.

10MFY22 new property sales higher yoy

10MFY22 new property sales came in higher yoy at RM1.7bn (10MFY21: RM1.04bn), accounting for 85% of its FY22F new property sales target of RM2bn. Of the RM1.7bn new sales, RM1.58bn were from its London projects and RM153m were from Australia. As of end-Aug, EWI had a booking pipeline of RM361m. Unbilled sales as at end-Aug 22 stood at RM948m, based on exchange rates of £1:RM5.26 and A$1:RM3.11. We expect core net loss to narrow in 4QFY22F, supported by the handover of units in EcoWorldLondon projects (handover of remaining units in Millbrook Park Phase 2 and commencement of unit handover for Kew Bridge Verdo in 4QFY22).

New launches likely to be delayed

YTD, EWI had only launched one new project, ‘New Road Triangle’ with a gross development value (GDV) of £51m, which was sold through an en-bloc deal in Aug 22 and slated to be ready by FY24F. We gather that EWI will likely delay its launches planned for FY22F (Woking £350m, Oxbow £120m, and Kew Bridge £240m) to FY23F, as management is relooking the viability of the projects due to rising construction costs. It has not given any updates on its new BTR projects either.

Reiterate Hold

We expect EWI to record losses in FY22-24F vs. profit in FY21 due to fewer project handovers, delays in new launches and BTR projects, and sale of new launches contributing meaningfully to earnings only from FY25F. Our TP is revised to RM0.35, as we roll over our valuation year from FY23F to FY24F, still based on P/BV of 0.33x (-1 s.d. from its 5-year mean P/BV). We retain our Hold call given its lower net gearing of 7% as of end-Jul 22 vs. peers’ 35%, and undemanding valuation of <0.3x P/BV vs. peers’ 0.43x.

Source: CGS-CIMB Research - 14 Sep 2022