Period

2Q15/6M15

Actual vs. Expectations

1H15 core net earnings of RM14.9m made up 29% of consensus and 40% of our full year estimates. However, we deem this as broadly inline as we expect earnings to kick-in during 2H15 given timing of contributions.

7MFY15E sales (up to May-15) of RM1.2b appears to be behind ours and management’s schedule vs. target of RM3.0b (making up 37% of full year sales). However, we are confident that management will meet our full year FY15E due to a better 2H15 as the bulk of FY15 launches took place only last weekend (13th June 2015) for projects such as; (i) Eco Sanctuary, (ii) Eco Business Park 3, (iii) Eco Terraces and (iv) Eco Tropics, while our channel checks suggest that these projects were well taken-up. Geographical sales breakdown as at May-15 (7 months) comprises of Johor (47%), KV (53%) and Penang (0%).

Dividends

None as expected.

Key Results Highlights

QoQ, revenue was up by 164% to RM417.8m was recognised mainly from Eco Majestic, Eco Sky and Saujana Glenmarie in the Klang Valley, and Eco Botanic Eco Spring/Summer, Eco Tropics and Eco Business Park 1 in Johor. Topline pushed for better EBITDA and net margins, which increased slightly by 0.8ppt and 0.9ppt to 6.6% and 2.8% despite higher cost of sales (+166%), and finance cost (+174%). All in all, bottom line increased by 286% to RM11.8m.

YoY comparisons are not reflective as; (i) the current management team took over the helm of the company back in Oct-13, (ii) changes in financial year-ends from September to October, rendering 2Q comparisons redundant.

Outlook

ECOWLD will not be pursuing the EWI SPAC as initially planned and instead, will instead attempt an IPO listing via the market capitalisation route. The IPO aims to raise RM2.0b while ECOWLD is still interested to take-up a 30% stake. The new listing route enables EWI to be more marketable across a greater pool of investors. Taking this pro into consideration and also the push-back in listing EWI, we are neutral to slightly positive on this move and require more details for a more concrete view.

Change to Forecasts

No change to earnings estimates.

Rating

Maintain OUTPERFORM

Valuation

Maintain OUTPERFORM with unchanged TP of RM2.05 with a 40% discount to our FD RNAV of RM3.17. Our applied RNAV discount is at a slight premium to our sector coverage’s average of 50% due to the group’s aggressive expansion plans, reputable management team and positioning as a township developer which will benefit from resilient demand.

ECOWLD share price has been hammered down by 6% over the week on the expectation of hiccups in the SPAC listing. We reckon this is unwarranted considering that EWI is confident that the new listing route is viable considering that they have boldly started their overseas project launches. Until listing details (e.g. timeline / funding structure) are revealed, we admit that the share price may remain volatile. Nonetheless, we still like the stock as a longer-term value emerging stock given their aggressive growth path and the management team.

Risks to Our Call

Balance sheet risk. Weaker-than-expected property sales. Higher-than-expected sales and administrative cost. Negative real estate policies. Tighter lending environment. Delays in EWI listing.

Source: Kenanga Research - 18 Jun 2015