9M18 CNP of RM97.1m is broadly in-line as we anticipate a strong 4Q18 from JCE contributions. 10M18 local sales of RM2.0b and EWINT’s international sales of RM1.0b are also deemed broadly within expectations as their sales campaigns only commenced in June. No dividends as expected. Management is keeping to their targets. No changes to earnings. Reiterate MARKET PERFORM and TP of RM1.30.

Broadly within expectations. 9M18 CNP of RM97.1m accounts for 55% of street’s FY18E estimates and 59% of ours. We deem this as broadly within expectations as 4Q18 is expected to be a very strong quarter considering that all its four local JCE projects contributions have turned positive this year while there is expectation of EWI’s lumpy profit recognition in 4Q18. 10M18 local sales stood at RM2.0b which made up 57% of both management’s and our FY18E local sales target of RM3.5b; we deemed it as broadly in-line since historically, 4Q sales are typically the strongest and have accounted for close to half of the full- year sales. Its associate, EWINT achieved RM1.0b sales over 10M18 or 51% of our RM2.0b target and 34% of management’s RM3.0b target which we deem as broadly within as it depends on the timing of when the en-bloc sales can be locked-in (refer overleaf). No dividends, as expected.

More JCE contributions. YoY, 9M18 CNP grew 20% mainly because of; (i) significant overheads (A&P, admin.) cost reduction by 24% to RM191.2m thanks to its strategic shift towards digital marketing platforms which have yielded a more impactful result with much lower costs, (ii) its JCE/associates’ contributions are now in the black at RM19.8m (9M17: -RM19.7m) as all four local JCE projects (Eco Ardence, Eco Grandeur, Eco Horizon, BBCC) have commenced recognitions. Note that revenue is 23% lower as earnings recognitions are switching from subsidiaries to JCE ones. QoQ, 3Q18 CNP rose by 12% to RM38.5m because of the sharp improvement in associate/JCE’s contributions to RM18.9m (2Q17: RM1.1m).

Maintain RM3.5b sales target as we expect stronger sales momentum in light of the strong responses to #OnlyEcoWorld campaign and the EcoWorld Help2Own (EW-H2O) financing package, which was only launched in June. We also expect its associate, EWINT, to return to the black in 4Q18. For now, we do not expect any major land banking activities until year-end.

No changes to earnings. Earnings risks lies with timing of EWI’s project deliveries, which for now, we believe is still on track as per our projections. Unbilled sales of RM6.2b (including effective portions from EWI) provide 2-3 years visibility.

Maintain MARKET PERFORM with a TP to RM1.30 based on a discount of 59% on its FD SoP of RM3.18. Our applied discount is pegged at the -1.0SD levels to its historical average, which is similar to the levels pegged to other developers in our universe. For now, we believe the market is awaiting clarity on the new national affordable housing policy which is likely to keep investors on the side-lines for now. We think re-rating in valuations will depend on positives surprises in sales/earnings or strong sector catalysts. Risks to our call include: (i) weaker/stronger-than-expected property sales, (ii) higher/lower-than- expected overheads/finance costs, (iii) timing of EWI project deliveries, and (iv) changes in real estate policies/lending environment.

Source: Kenanga Research - 21 Sep 2018