INVESTMENT HIGHLIGHTS

• 9MFY17 earnings below expectation

• Affected by financing costs and JV initial losses

• Achieved sales of RM2.39b for 10MFY17

• Earnings estimate reduced

• Downgrade to NEUTRAL with Target Price of RM1.70

9MFY17 earnings below expectation. Eco World Development Group (ECOWLD) 9MFY17 Core Net Income (CNI) of RM81.4m is below expectation at 58%/61% of our/consensus full year forecast. Earnings was affected by higher than expected finance costs and share of the initial losses incurred by joint venture (JV) companies. Our CNI excludes the one off gain arising from dilution of equity interest in Paragon Pinnacle (the Company which owns the Ijok landbank). As expected, no dividend is declared.

Affected by financing costs and JV initial losses. The higher finance costs are due to new term loans taken to fund the investments in and advances to JV and associated companies. Earnings was also affected by share of the initial losses incurred by JV companies (namely EWI, Eco Grandeur, Eco Ardence and BBCC) pending commencement of property development profit recognition.

Achieved sales of RM2.39b for 10MFY17. The RM2.39b secured sales represents 60% of management and our full year target of RM4.0b. We are maintaining our full year sales target as ECOWLD plans to launch three major projects by end September. These include: i) Eco Forest at Semenyih, Selangor, ii) Eco Business Park V at Ijok, Selangor and iii) Eco Horizon at Batu Kawan, Penang.

Earnings estimate reduced. FY17 core net income estimate is reduced by 11% to RM114m. We also cut our FY18 net income estimate by 22% to RM202m. We have assumed higher financing costs and higher JV losses. Unbilled sales of RM6.22b reflects 2.4years of earnings visibility.

Downgrade to NEUTRAL with TP of RM1.70. Previous TP is RM1.80. The lower TP is in line with the assumption of lower margin from local market and lower fair value for EcoWorld International. Valuation method is unchanged by using Price-to-RNAV (PRNAV) of 0.75x reflecting 0.5SD valuation above mean.

Source: MIDF Research - 15 Sept 2017