FY17 CNP of RM113m missed market expectations (93%) but was within ours (98%). Local sales were on track at RM4.0b while its associate, EWINT only raked-in RM2.0b sales vs. a target of RM2.5b. No dividends as expected. For FY18, ECOWLD is targeting lower local sales of RM3.5b while EWINT’s target is set at RM2.0b. Lowering FY18E estimates by 24%. Maintain MARKET PERFORM with a lower TP of RM1.60.

Below market but within our expectations. FY17 CNP of RM113m missed market expectations (93%) but came in within our full year estimates (98%). Consensus may have underestimated finance cost and losses from JCE/associates. Local sales for the year of RM4.0b* met management’s and our full year targets of RM4.0b* - notably 4Q17 sales made up 46% of full year sales, thanks to its EcoWorld DNA campaign. However, its 27% associate, EWINT, only registered sales of RM2.0b* which was below management’s and our FY17E target of RM2.5b*. No dividends, as expected.

Dragged down by finance costs and associate start-up costs. QoQ, 4Q17 CNP rose by 22% as billings are kicking-in from on going projects with revenue increasing by 18% while EBIT margins are stable at 10.0%. Net gearing has creeped-up slightly to 0.71x. YoY, FY17 CNP still declined by 13% albeit the 15% topline growth as it was hit with higher finance costs arising from the equity financing of EWINT/associate projects whose interests cost cannot be capitalised and related start-up costs as these entities have yet to see meaningful contributions due to timing of billings.

A more prudent FY18 sales target. ECOWLD is targeting local sales of RM3.5b in FY18E while its associate, EWINT, targets RM2.0b sales. Emphasis will be on execution and township occupancy in FY18 while landbanking news is likely to be quieter. EWINT has also entered into a proposed 70% JV with Wilmott Dixon to develop 12 sites via two acquisitions stages, with Stage 1 consideration of GBP64.96m (RM356.3m) has a GDV of GBP1.09b (RM5.97b). (Refer overleaf).

Cutting FY18E CNP by 24% and introduce FY19E CNP. Unbilled sales of RM6.40b (including EWINT projects at effective levels) provides 2-3 years earnings visibility. For now, we opt to conservatively assume dividend payouts will only commence in FY19, although management did indicate it could happen in FY18 (refer overleaf).

Reiterate MARKET PERFORM with a lower TP of RM1.60 (from RM1.72) based on a wider property RNAV discount of 55%, which implies a steeper FD SOP discount of 50% while our FD SOP of RM3.17 is largely unchanged post imputing for the 70% JV deal with Willmott Dixon (refer overleaf). While FY17 sales performance was impressive even with the challenging landscape, demonstrating ECOWLD’s strong abilities and branding, we believe that investors may be less excited given that sales trajectories are weaker next year. However, downside risks should be supported by the earnings normalisation process. We may review our recommendation if there are other catalytic news (e.g. M&A), sales/earnings surprises or sharp retracement in share prices.

Risks to our call include: (i) weaker/stronger-than-expected property sales, (ii) lower/higher than expected sales/administrative and finance costs, (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 18 Dec 2017