Period

4Q15/12M15

Actual vs. Expectations

12M15 earnings of RM44m made up 112% of consensus and 118% of our full year estimates. This was mainly due to stronger than expected billing in 4Q15 (refer overleaf) as most projects are in full swing construction mode.

12MFY15E sales of RM3.0b was spot-on, meeting both ours and managements FY15E target at 100%. Major drivers are from Klang Valley projects (52% of sales) such as Eco Majestic and Eco Sanctuary, while Johor (40% of sales) has been picking up steam with all projects, mainly, Eco Spring & Summer and Eco Tropics.

Dividends

None as expected.

Key Results Highlights

QoQ, earnings was up by a solid 110% to RM19.7m on a strong topline which was up by 50% to RM681.9m on strong sales recognitions and EBIT margin improvements by 2.0ppt to 5.7%.

YoY-Ytd comparisons are not reflective due to changes in FYE from September to October last year, rendering 12- month comparisons redundant.

Outlook

ECOWLD is still targeting an IPO listing of EWI via the market capitalisation route by 1QCY16. To recap, the IPO aims to raise RM2.0b while ECOWLD has formally announced expressed interest to take-up a 30% stake in EWI (refer overleaf). We also hope to see more concrete details on the acquisition of the Kuala Selangor land which will entail forming partnerships for funding.

The company remains confident of achieving its sales of RM4.0b in FY16E and has also introduced its FY17E sales target of RM4.5b (refer overleaf).

Change to Forecasts

Raising FY16E earnings by 11% largely due to billings and margin assumptions for local projects. We are also raising our FY16E sales from RM3.2b to RM4.0b as we build in a bigger pipeline of launches from EWI. However, note that EWI projects are recognized on completion i.e. no significant earnings impact over FY16-17E. Unbilled sales of RM4.16b provide 2 years visibility.

Rating

Maintain OUTPERFORM

Valuation

No changes to TP of RM1.90 based on 45% discount to FD RNAV of RM3.17. Our applied RNAV discount is more bullish than 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, while the group will be one of the rare few developers to show YoY growth in 2016 sales. The stock is poised to benefit from newsflow with EWI’s upcoming listing and more concrete details on the funding of avenue partnerships for landbanks like Kuala Selangor materializes.

Risks to Our Call

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

Source: Kenanga Research - 11 Dec 2015