INVESTMENT HIGHLIGHTS

• 1HFY19 earnings slightly below expectations

• Earnings helped by contribution from JV

• New property sales at RM1.03b in 7MFY19

• Earnings forecast revised downwards

• Maintain BUY with a revised TP of RM1.02

1HFY19 earnings slightly below expectations. Eco World Development Group (ECOWLD) 1HFY19 core net income of RM71.5m came in slightly below expectations, making up 40% and 36% of our and consensus full year forecasts. The negative deviation could be attributed to the higher than expected expenses.

Earnings helped by contribution from JV. On sequential basis, 2QFY19 core net income was higher at RM41.2m (+35.8%qoq) due to higher progress billing of local projects which mitigated negative impact of higher expenses and lower contribution from joint ventures (JV). On yearly basis, 2QFY19 core net income declined by 4.8%yoy mainly due to higher expenses. That brought cumulative earnings in 1HFY19 to RM71.5m (+30.6%yoy). The higher earnings in 1HFY19 were driven by positive contribution from JV of RM40.3m against losses from JV of RM2.6m in 1HFY18. Meanwhile, ECOWLD has future revenue amounting to RM6.09b as at May 2019, providing earnings visibility for FY19/20.

New property sales at RM1.03b in 7MFY19. New property sales of ECOWLD picked up to RM1.03b in 7MFY19 from new sales of RM230m in first four months of FY19. New property sales were driven by National Home Ownership Campaign (launched on 1 March 2019) and ECOWLD’s Help2Own and Stay2Own solutions under its HOPE Campaign (Home Ownership Programme with EcoWorld). Meanwhile, ECOWLD remains committed to meet its 2-year new sales target of RM6b.

Maintain BUY with a revised TP of RM1.02. We revised our FY19F/20F earnings forecast by -3.7%/-4.5% to take into account of the higher expenses. We revise our TP for ECOWLD to RM1.02 from RM1.25 as we widen our RNAV discount to 55% from 45%. Nevertheless, we maintain our BUY recommendation on ECOWLD as valuation of ECOWLD is attractive at 44% discount to latest book value of RM1.49 per share. Besides, earnings outlook for FY19 is expected to be supported by higher contribution from JV.

Source: MIDF Research - 28 Jun 2019