1H16 earnings and 7M16 sales of RM1.32b came broadly within. No dividends as expected. Eco Horizon/Sun land deal was announced and its Kuala Selangor land deal should be concluded soon. These acquisitions will be partly funded by its “Partnership For Growth Model” which helps alleviate balance sheet stress while allowing for growth and we view this positively. Target listing of EWI is now Sep/Oct-16. No changes to earnings. Maintain OUTPERFORM with a higher TP of RM1.58.

Broadly within. 1H16 earnings of RM55.3m made up 47% and 44% of street and our expectations, respectively. We expect a stronger billing cycle in 2H16 as project handovers will take place then (refer overleaf). 7M16 sales of RM1.32b made up 33% of management’s and our FY16E sales target of RM4.0b. We deem this as broadly in-line in terms of local sales as the target includes c. 25% of sales from their soon-to-be listed associate, EWI, which has raked up RM1.45b* sales for 5M16. Management maintains their FY16-17E sales target at RM4.0b-RM4.5b. No dividends were declared, as expected.

Earnings momentum picks-up. 1H16 bottomline leaped by 272% YoY largely due to the normalization of billings from new sales garnered when ECOWLD was established. 2Q16 earnings was up by 68% QoQ to RM34.7m on improved billings (+33%) and EBIT margins (+2.0ppt QoQ to 9.8%) on controlled sales/marketing and administrative expenses, which is consistent with management’s earlier guidance.

Land deals rolling in. The group announced acquisition of 374.6 ac land in Batu Kawan for RM875.2m which carries a GDV of RM7.8b. Meanwhile the group also updated on its Kuala Selangor land (2198.4 ac @ RM1.18b, GDV RM15.3b) and approvals appear to be in place. ECOWLD will be using its “Partnership For Growth Model” where they invite strategic investors to participate and we gather EPF has expressed interest. Its 25% placement should be completed soon. EWI listing has been slightly delayed to Sep/Oct-16 listing due to the ‘new strategic investor’ while management is unfazed by BREXIT. Factoring for all of these exercises, we expect FY17E net gearing to increase from 0.44x to 0.61x (refer overleaf for details). Overall, we view this exercise and business model as a positive as it allows to group to expand their presence and branding quickly and also globally without over taxing its balance sheet while leveraging on the different strengths and expertise of its strategic partners. Note that landbanking activities are expected to continue (e.g. it was reported that ECOWLD may revisit the Eco Marina deal) but management indicated that they are exploring non-dilutive fund raising options.

No changes to earnings. Unbilled sales of RM4.5b provide about 1.5 year visibility.

Maintain OUTPERFORM with a higher TP of RM1.58 (from RM1.49). Our FD SOP increases by 7% to RM2.92 after imputing for (i) ECOWLD stake in Eco Horizon/Sun and Eco Gardens/EBPV is at 60% each, (ii) note that our earlier estimates include Eco Ardence at 50% stake, EWI at 30% stake at the 25% placement to raise c. RM768m. Our TP increases to RM1.58 based on an unchanged 51% Property RNAV discount (implied FD SOP discount is 45%). The group is set to benefit from a few major news-flow this year, particularly since there is no major excitement in the sector.

Source: Kenanga Research - 29 Jun 2016