FY18 CNP of RM166m is within expectations. Although full- year local sales of RM3.11b fell short of management’s and our targets, associate EWINT exceeded sale targets at RM3.26b*. ECOWLD and EWINT are targeting cumulative sales of RM12.0b* over FY19-20 and potentially maiden dividends for FY19. Upgrade to OUTPERFORM with an unchanged TP of RM1.15.

Within expectations. FY18 CNP of RM166m came within expectations at 103% of street’s full-year estimate and 101% of ours. However, note that EWINT’s contribution was weaker than our estimates but this was compensated by stronger-than-expected local JCE projects contributions like Eco Ardence. FY18 local sales only came in at RM3.11b which was below management’s and our targets of RM3.50b each, attributable to the delays of launches which were affected by timing of GE-2018, while we note that most of their launches this year are from on-going townships, which do not carry the same momentum as the earlier phases of newly launched townships. However, its 27% associate, EWINT, registered RM3.26b* in international sales which was well above our and management’s targets of RM2.0b* and RM3.0b*, respectively, due to an en-bloc sale. No dividend, as expected.

Driven by earnings normalisation. QoQ, 4Q18 CNP rose by 78% due to higher billings from subsidiaries and sharp improvement in associates/JVs by 95% to RM36.8m; this is part of the earnings normalization process from their earlier years’ property sales, both from local subsidiary projects and JV projects (local and EWINT). Notably, EWINT saw its maiden profit this quarter. YoY, FY18 CNP was up by 46% albeit the 26% decline in revenue as earnings mix leaned towards more JV projects, than subsidiary ones. The main reason for the earnings improvement is due to similar factors mentioned above. Net gearing had eased slightly to 0.75x from 0.79x last quarter.

Collectively targeting RM12.0b* sales over FY19-20, where ECOWLD targets RM6.0b local sales in FY19-20, while EWINT is also targeting RM6.0b* international sales over the same period - note that individual year’s sales targets were not provided (refer overleaf). Positively, both ECOWLD and EWINT are looking to declare their first maiden dividend in FY19 although details on pay-out ratios and dividend policies will only be made known towards the latter part of FY19. Reduce FY19E CNP by 20%, while we introduce FY20E forecasts (refer overleaf).

Upgrade to OUTPERFORM (from MP) with an unchanged TP of RM1.15, which implies a FD SoP discount of 64% to its FD SoP of RM3.18. Note that we had trimmed ECOWLD’s TP by 12% post Budget-2019 announcement (5/11/18 sector report) to reflect potentially softer sales trajectories. Our applied discount is pegged at the -2.0SD levels to its historical average which is at the lower end of our universe’s applied discount levels of -1.0SD to -2.0SD given their relatively thinner margins and high net gearing. Re-rating in valuations will depend on positives surprises in sales/earnings or strong sector catalysts.

Risks to our call include: (i) weaker-than-expected property sales, (ii) higher-than-expected overheads/finance costs, (iii) timing of EWI project deliveries, and (iv) changes in real estate policies/lending environment.

Source: Kenanga Research - 14 Dec 2018