1Q19 CNP of RM30m came broadly within expectations. 4M19 local sales of RM230m and its 27% associate, EWINT’s overseas sales of RM146m* are also deemed broadly in-line due to timing of campaigns. No dividends, as expected. Both ECOWLD and EWINT are collectively targeting mammoth RM12b* sales over FY19-20. Earnings maintained. Reiterate OUTPERFORM with a TP of RM1.150.

Broadly within. 1Q19 CNP of RM30m came broadly within expectations at 15% each of street and our FY19E estimates (refer overleaf for EWINT result highlights). We expect stronger earnings in coming quarters from strong contributions from its JCE projects, especially EWINT. 4M19 local sales of RM230m only accounted for 8% of our FY19E local sales target of RM3.01b, but we deem this as broadly inline considering last quarter’s extraordinary sales performance (#OnlyEcoWorld Campaign expired on 31/10/18), while many buyers held back purchases in anticipation of the Budget-2019 goodies (stamp duty relief and discount of 10% under the Home Ownership Campaign or HOC). Its 27% associate, EWINT, recorded RM146m* sales over 4M19, which we also deem as broadly in-line with our FY19E target of RM2.33b*, as the group expect to lock-in more London build-to-rent (BtR) projects, which will be lumpy. Recall that both ECOWLD (local) and EWINT (overseas) have combined sales target of RM12b* over FY19-20. No dividends, as expected.

Result highlight. QoQ, 1Q19 CNP was sharply down by 56% to RM30m due to: (i) lower subsidiary project billings (-19%), (ii) EBIT margins compressed by 3.5ppt to 8.4% on the back of weaker development margins, and (iii) decline in associate/JCE profit (-34%) because of EWINT’s softer sales recognition. YoY, although revenue declined by 13%, CNP rose by 26% mainly because most of its JCE projects were at critical construction stages, and hence, more meaningful profit recognition. Net gearing had moved up to 0.79x from last quarter’s 0.75x.

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. According to management, sales have started to pick up with the onset of the HOC and the group’s Home Ownership Programmed with EcoWorld (HOPE) campaign (Help2Own and Stay2Own). Positively, both ECOWLD and EWINT are looking to declare their first maiden dividends in FY19, although details on pay-out ratios and dividend policies will only be made known towards the later part of FY19.

No changes to estimates. Unbilled sales of RM6.08b provide 2-3 years’ visibility.

Reiterate OUTPERFORM with an unchanged TP of RM1.150. Our TP implies a FD SoP discount of 64% to its FD SoP of RM3.18. 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 (- 1.0SD to historical trough levels) given their relatively thinner margins and high net gearing. We believe this is a good time to accumulate given the recent share price weakness, while the stock is one of the YTD laggards amongst its peers for the year.

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 - 29 Mar 2019