INVESTMENT HIGHLIGHTS

• 1QFY18 earnings slightly below expectations

• Higher earnings in 1QFY18

• New sales at RM500m

• Earnings estimate reduced

• Upgrade to BUY with a revised TP of RM1.48

1QFY18 earnings slightly below expectations. Eco World Development Group (ECOWLD) 1QFY18 core net income of RM25.8m came in slightly below expectations, making up 14% of our and consensus full year estimates. The negative deviation could be attributed to the slower than expected progress billing in 1QFY18.

Higher earnings in 1QFY18. ECOWLD recorded lower topline of RM563.6m (-4.9%yoy) in 1QFY18 as large number of completed properties were progressively handed over from 2QFY17 to 4QFY17. Nevertheless, core net income of RM25.8m climbed 20%yoy from core net income of RM21.5m in 1QFY17. Note that we have excluded one off gain of RM94.8m from dilution of equity interest in Paragon Pinnacle in our 1QFY17 core net income calculation. The higher earnings in 1QFY18 were mainly due to lower marketing and administrative expenses which more than offset the higher finance costs. Meanwhile, unbilled sales of RM6.3b provide 2 years of earnings visibility.

New sales at RM500m. ECOWLD registered new sales of RM500m in 1QFY18 which is weaker than new sales of RM1.83b in 4QFY17 as previous quarter sales were boosted by the “EcoWorld DNA” campaign which involved the concurrent launch of 5 projects. The new sales in 1QFY18 made up 14% of management sales target of RM3.5b. New sales have picked up to RM602m as at Feb 2018 and management is maintaining its sales target of RM3.5b.

Upgrade to BUY with a revised TP of RM1.48. We reduced our FY18/19 earnings forecast by 14%/7% to factor in slower progress billing. Our TP is revised to RM1.48 from RM1.60 as we widen our RNAV discount to 35% from 30%. However, we are upgrading ECOWLD to BUY from NEUTRAL as value has emerged following the recent decline in share price. Valuation of ECOWLD is attractive as ECOWLD is trading at 31% discount to its latest book value of RM1.45 per share. Meanwhile, new sales are also expected to pick up in the coming quarters.

Source: MIDF Research - 30 Mar 2018