Period

1Q16

Actual vs. Expectations

1Q16 earnings of RM20.7m came broadly within expectations, making up 18% of street’s FY16E earnings and 16% of ours. Due to maiden contributions from projects launched last year, we expect strong billing cycles in 2H16 as we gather that some projects will be handed over earlier.

4M16 sales of RM608m accounted for 15% of management’s and our FY16 sales target of RM4.0b. We deem this as broadly within expectation as our estimate includes sales from their potential associate stake in EWI, which will only occur in 3QCY16.

Dividends

None as expected.

Key Results Highlights

QoQ, earnings was up by 5% albeit a 32% decline in revenue (slower billings during festive months). We note that EBIT margin improved by 2.1ppt to 7.8% as the group’s selling/marketing and administrative expenses was reduced by 41%, which is in-line with management’s earlier guidance that most of the heavy branding activities were done last year and now that the ECOWLD brand is established, more social media marketing is being implemented.

YoY, bottomline swelled by 576% largely due to its normalization of billings from new sales garnered when ECOWLD was established.

Outlook

ECOWLD targets an IPO listing of EWI by Jun-2016. To recap, ECOWLD has formally expressed interest to take-up a 30% stake in EWI (refer to report dated 11/12/15 for details). Note that we have built in EWI associate stake into our estimates. We also hope to see more concrete details on the acquisition of the Kuala Selangor land which will entail forming partnerships for funding.

Change to Forecasts

No changes to earnings. Unbilled sales of RM4.4b provide 2 years visibility.

Rating

Maintain OUTPERFORM

Valuation

Lower TP of RM1.74 (previously RM1.90) based on 51% property RNAV discount or 45% discount to SoP of RM3.17 (previously 45%/40%) as we are downgrading the Property sector to UNDERWEIGHT from NEUTRAL (refer to Property Sector report @ 25/3/16). However, our applied RNAV discount is still at a slight premium to our sector coverage’s average of 53% due to the group’s aggressive expansion plans and expectations that its share price will benefit from newsflow such as EWI’s upcoming listing and more concrete details on the funding of avenue partnerships for landbanks like Kuala Selangor.

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. (v) Tighter lending environment. (vi) Delays in EWI listing.

Source: Kenanga Research - 25 Mar 2016