Investment Merit

EWINT entered into a 70% JV with Willmott Dixon, which will provide investors with longer-term earnings visibility beyond 2021. We like the project for its mass market positioning and attractive land prices. Expect earnings to turn into the black in 2H18, with FY18-19E CNP of RM125.3- 316.8m. Recent sell down on EWINT is unwarranted. Trading Buy with TP range of RM1.20-1.30.

UK is pro mass market. UK’s Autumn Budget (22nd Nov 17) highlighted that new home supply needs to increase to 300,000 p.a. by mid-2020 (from 217,000 p.a.) to address current demographic projections and housing affordability. To encourage demand, stamp duty was scrapped for the first GBP300k or a purchase up to a GBP500k home. (Refer overleaf)

Willmott Dixon JV provides earnings visibility beyond 2021. One of the main concerns was earnings visibility beyond 2021 based on IPO project pipeline. However, this has been put to rest with EWINT’s proposed JV (70% stake) with Willmott Dixon to jointly develop 12 sites in Greater London and the South East of England. The group will also get Willmott’s development management arm. The acquisition will be done in 2 stages; (i) Stage 1 GDV of GBP1.09b (RM5.97b), and (ii) Stage 2 GDV of GBP1.51b (RM8.27b). The purchase consideration of Stage 1 is GBP64.96m (RM356.3m) implying a land cost to GDV ratio of 6%, which is more attractive than EWINT’s average of 25%. This development will encompass more resilient domestic mass market products (ASP GBP500-800psf vs. current projects ASPs of GBP800-1500psf), whilst benefiting from the recent positive measures. We expect launches to commence in FY19, which is timely as existing project contributions will taper off post 2021. We believe FY18E net gearing could increase to 0.10x (from 0.04x) but come off to 0.03x in FY19 on more project deliveries. IPO proceeds will be sufficient to finance the acquisition, hence unlikely to see cash calls.

FY18 will see maiden earnings contributions. We project FY18- 19E sales targets of RM2.00-2.26b. Hence, with upcoming handovers of London City Island (LCI) (block A&M) and Embassy Gardens (EG) (block A04) in 2HFY18, and remaining blocks at LCI and EG to be delivered in 2HFY19, we estimate FY18-19E CNP of RM125.3- 316.8m. Effective unbilled sales of RM5.85b at 4Q17 provide strong earnings visibility (refer overleaf).

Attractive valuations as share price has retreated below IPO price of RM1.20 (-14% since IPO in April-17), vs. the sector (+7% KLPRP) and broader market (+7% KLCI) during the same period, even though EWINT’s fundamentals remain largely intact. Furthermore, EWINT is the only locally traded developer that will not be affected by Malaysia’s potential OPR rate hikes in CY18, while the UK has a more dovish interest rate outlook.

Trading Buy with a fair value range of RM1.20- RM1.30 based on 26% discount to our FD SOP RNAV range to RM1.62-1.75*. Our applied discount is below its parent ECOWLD (50%) as EWINT has fewer projects on hand with shorter durations vs. ECOWLD, which has more townships. With earnings normalizing in the next 2 years resulting in high earnings growth, FY19E PER is attractive at 7.8x while our TP range implies 9.1x-9.8x FY19E PER’s. Meanwhile, sizeable peers are trading at FY18/19E PER of 11.7-18.0x with earnings growth of 28.0% and -1.9% (FY17/18-18/19E).

Source: Kenanga Research - 19 Dec 2017