1Q17 CNP of RM21m broadly met expectations. 4M17 local sales were also broadly within expectations of RM4.0b at 24%. No dividends as expected. EWI will be investing RM0.78b for its 27% associate, which will be listed on 3rd April 2017. FY17E earnings are lowered by 16% while FY18E earnings? is increased by 9% due to adjustment in EWI. Maintain OUTPERFORM with a higher TP of RM1.66.

Broadly within expectations. 1Q17 CNP of RM21.4m came in broadly within expectations, making-up 16% and 12% of our and consensus estimates, respectively. Billings are expected to pick up as key projects are at significant stages of construction. 4M17 sales (as at Feb-17) of RM955m is also broadly within our local sales target of RM4.0b** at 24%. EWI has achieved effective sales of RM261m* as at Jan 2017. No dividends as expected.

Results Highlights. QoQ, top-line declined by 20% due to slower work progress during year-end festive season and Chinese New Year holidays, resulting in CNP declining by 27%. Note that the quarter saw a one-off gain of RM94.8m on changes in equity interest at Eco Grandeur/EBP V to 60% (from 100%). YoY, 1Q17 saw strong top- line growth (+28%) from billings from on-going projects. However, top-line growth was watered down by: (i) higher net admin/sales cost (+12%), (ii) higher financing cost (+267%) arising from its associate equity funding, which cannot be capitalized, and (iii) higher losses from associate and JCE (+148%) such as Eco Grandeur and Eco Ardence as the bulk of these projects have yet to see significant commencement of billings while there are high upfront costs (e.g. marketing/sales galleries). Net gearing lowered at 0.55x vs. last quarter?s 0.60x, likely due to the completion of the second tranche of placement during the quarter.

Outlook. We are targeting RM4.0b** local sales in FY17 in line with management?s target, and EWI effective sales of RM0.81b*, i.e. total of RM4.8b. ECOWLD will take a 27% stake in EWI for a total sum of RM777.6m (648m shares on an IPO price of RM1.20) which is set for listing on 3rd April 2017. The Group has completed the third and final tranche of the 591.1m private placement on 6th March 2017 (2Q17).

Lowering FY17E CNP by 16% but increasing FY18E by 9%. We had earlier imputed for EWI?s share of earnings (27% stake) but there are further adjustments to our EWI earnings as we expect slightly wider losses in FY17 but expect better contributions by FY18 on portions of London City Island and Embassy Gardens maiden contributions (refer to EWI IPO note for further details); note that EWI will only be reflected in ECOWLD financials from 2Q17 onwards. Unbilled sales of RM4.96b provide more than 2 years visibility.

Maintain OUTPERFORM with a higher TP of RM1.66 on unchanged property RNAV discount of 53% (implied SoP discount of 47%) to a higher FD SoP of RM3.18 (previously TP of RM1.53 and FD SoP of RM2.91) (Refer overleaf). 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, in particular, as we expect strong land banking news to materialize.

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.

Source: Kenanga Research - 17 Mar 2017