FY16 NP of RM129.3m came within expectations, at 102% of both consensus and our estimates. Sales for FY16 were within expectations at RM4.0b*, including EWI sales. No dividends as expected. Management is targeting local sales of RM4.0b. We are lowering our FY17E earnings by 47%. Maintain OUTPERFORM with a lower TP of RM1.53.

Within expectations. FY16 earnings of RM129.3m came in within expectations, making-up 102% of both street and our estimates. FY16 sales at RM4.0b* (+3% YoY) (85% local, 15% international) met both our and management?s target of RM4.0b; note that local sales came in higher than the initial 75%:25% local:international sales ratio guidance and 4Q16 local sales made up 44% of total sales. No dividends, as expected.

Billings coming in strong. YoY, FY16 earnings jumped by 194% on strong billings and better EBIT margins (+3.7ppt to 9.3%) largely due to the normalization of billings. Selling cost was reduced by 9% on more social media efforts, but administrative expense was up 31% on higher staff costs and write-offs of earlier temporary galleries. QoQ, 4Q16 earnings of RM29.4m was down by 34% albeit slightly higher billings (+2%). While gross margins improved by 3.1ppt to 24.5%, there was a 52% surge in combined selling and administrative expenses as the group had major launches in 4Q16. This was further exacerbated by an 81% increase in finance cost to RM13.6m arising from its associate equity funding, which cannot be capitalized. Net gearing is now at 0.60x vs. last quarter?s 0.65x due to the completion of the first tranche of placement.

Management targets FY17E RM4.0b** local sales; EWI will only be able to guide sales targets during its IPO launch. Key new launches will be EBP V and Eco Bloom, while the rest will be new phases of existing projects. We anticipate EWI listing by Mar 2017, where ECOWLD will take a 27% stake. So far, the group has done 73% of the 591.1m private placement and should be completing the remaining portion by 1QCY16. We expect to hear more on the ?partnership for growth model? with regards to existing and new landbanks as part of its efforts to continue its aggressive growth while ensuring that net gearing remains manageable; non-dilutive hybrids are still being considered.

FY17E earnings lowered by 47%. We raise FY17E local sales by 5% to RM4.0b** and maintain EWI sales at RM0.6b*, i.e. total of RM4.6b. However, earnings are negatively impacted by operating losses from EWI as billings have yet to kick-in as recognition is on completion basis and interest expense relating to borrowings used to fund the equity stakes of JCE projects cannot be capitalized. Unbilled sales of RM6.0b provides more than 2years? earnings visibility.

Maintain OUTPERFORM as ECOWLD is pursuing higher local sales target which is the highest in the industry. However, given FY17E earnings reduction, TP is lowered to RM1.53 (from RM1.58^) on a wider property RNAV discount to 53% or implied SoP discount of 47% (historical: 54%) to its FD SoP of RM2.91. The stock will remain in the limelight as both ECOWLD and EWI will continue on their aggressive growth path while EWI listing should provide some uplift to its share price (our valuations already factored in EWI). Downside risks to our call include: (i) weaker-than-expected property sales, (ii) lower-than- expected sales/administrative and finance costs, (iii) negative real estate policies, and (iv) tighter lending environment.

* BBCC (40%) and EWI (27%) at effective stakes ** At gross levels ^ Previous TP of RM1.58 @ 51% property RNAV discount or implied SOP discount of 46%

Source: Kenanga Research - 09 Dec 2016