Kenanga Research & Investment

Eco World Dev. Group - Upgrade on Stronger Rebound Outlook

kiasutrader
Publish date: Fri, 25 Jun 2021, 12:28 PM

1HFY21 CNP of RM105m is deemed below expectations due to our overly bullish estimate for EWINT as well as the FMCO imposed which would impact progress billing in 3QFY21. That said, ECOWLD’s 7MFY21 sales of RM2.53b outperformed our RM2.875b target. Despite cutting FY21E/FY22E earnings by 26%/14%, we upgrade ECOWLD to OUTPERFORM with a higher TP of RM0.85 on strong recovery prospects coupled with its ability to adapt in this challenging market to drive sales and earnings.

Below expectations. 2QFY21 CNP of RM42.3m brought 1HFY21 CNP to RM105m, accounting for 43%/48% of our/consensus full-year estimates. This is deemed below forecast as we foresee the FMCO to impact progress billings in the upcoming quarter (from May – July). In addition to that, we may have been overly optimistic on our EWINT estimates earlier as well. The 2.0 sen interim dividend declared was a positive surprise against our 2.1 sen estimate as we had only expected a final dividend in 4QFY21.

ECOWLD’s sales outperformed. In the three months from March-May 21, ECOWLD racked up sales of RM1.62b, bringing 7MFY21 total to RM2.53b – almost hitting our/management’s full-year target of RM2.875b at 88%. This strong performance is attributable to their attractively priced and appealing products being targeted to the M40 segment. We believe another key reason their sales outperforming other developers during this period is due to their robust online sales infrastructure which they have built - enabling them reach out to potential customers and convert sales virtually during this pandemic period. Consequent to the strong local sales, we upgrade our FY21 sales target to RM3.2b.

Meanwhile, EWINT’s 7MFY21 sales of RM753m* lag behind our/management’s target of RM2.2b as UK borders are only opened to specific “green list” countries and no BtR projects (which are typically lumpy) were concluded. In the absence of foreign sales contributions for EWINT in the near term, we trim our FY21 sales target for EWINT to RM1.5b.

Highlights. 2QFY21 CNP of RM42.3m came off 32% QoQ due to: (i) lower revenue of 17% as 1QFY21 had higher sales of completed products which were immediately recognisable in P&L, (ii) lower GP margins (- 2ppt) as further discounts were offered for completed/near completion inventories, and (iii) lower contribution from 27% EWINT JV as there were lower number of unit handovers for “Yarra One” project in Australia. YoY, 1HFY21 CNP of RM105m increased 81% mainly because 1HFY20 was affected by MCO 1.0.

Cut FY21E/FY22E CNP by 26%/14% to RM181m/RM223m after factoring (i) FMCO, and (ii) lower contributions from EWINT. Unbilled sales of RM4.2b provide c.2 years’ visibility.

Despite the results underperformance, we choose to upgrade ECOWLD to OP (from MP) with a higher TP of RM0.85 (from RM0.66) after rolling valuation base year forward on higher PBV of 0.51x (pegged at -0.5SD below 5-year mean) from 0.4x (at -1.0SD). Our rationale for such upgrade is premised on its ability to adapt and drive sales amidst the weak climate. In addition, their existing townships have matured and are highly appealing to its target market – allowing for easier sales with less marketing moving forward in our view. ECOWLD has also exhibited financial discipline in which net gearing has consecutively fallen QoQ since 1QFY19 from 0.79x to 0.55x as of 2QFY21. In line with this, dividend visibility is also clearer. All in all, with a leaner cost structure coming out from the pandemic, we believe earnings would rebound the fastest compared to peers – this explains our -0.5SD PBV ascribed to ECOWLD – the highest in our coverage where the rest ranges from - 2.0SD to -1.0SD.

Risks to our call include: (i) weaker-than-expected property sales, and (ii) higher-than-expected overheads/finance

 

Source: Kenanga Research - 25 Jun 2021

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