KEY INVESTMENT HIGHLIGHTS

• 1HFY20 earnings below expectations

• Delayed construction progress due to MCO

• New sales picking up in 3QFY20

• Earnings estimate revised downwards

• Maintain BUY with a revised TP of RM0.61

1HFY20 earnings below expectations. Eco World Development Group (ECOWLD) 1HFY20 core net income of RM55m came in below expectations, making up 29% and 30% of our and consensus full year estimates respectively. The negative deviation could be attributed to the delayed construction progress as a result of Movement Control Order.

Delayed construction progress due to MCO. On sequential basis, 2QFY20 earnings was lower at RM21.3m (-36.9%qoq) mainly due to halt of construction works during MCO since March and disruption to business activities. That led cumulative earnings in 1HFY20 to RM55m (- 23.1%yoy). The weaker earnings were due to delayed construction progress during MCO and lower property sales achieved in 1HFY20. On a separate note, ECOWLD’s future revenue recorded at RM4.6b as of April 2020, declined marginally from future revenue of RM4.7b in January 2020.

New sales picking up in 3QFY20. ECOWLD recorded low property sales of RM28.5m in 2QFY20 against property sales of RM305m in 1QFY20 as a result of closure of sales gallery during MCO. Nevertheless, sales momentum is picking up in 3QFY20 whereby ECOWLD recorded property sales of RM642m (including RM242m en bloc sale of serviced residence in BBCC to Mitsui Fudosan) and booking pipeline of approximately RM600m for the period from 1st May 2020 to 15th June 2020. That led total new sales to RM975m as of 15th June 2020. Hence, management is maintaining its new sales target of RM2b for FY20.

Maintain BUY with a revised TP of RM0.61. We revise our FY20/21F earnings forecast by -22.4%/-7.7% to factor in the delayed construction progress. Corresponding to the earnings downward revision, we are revising our TP for ECOWLD to RM0.61 from RM0.73 as we widen our RNAV discount to 73% from 68%. We are maintaining our BUY call on ECOWOLD as we see its valuation remains attractive, trading at 73% discount to latest NTA of RM1.56 per share. Besides, earnings of ECOWLD is expected to recover in 2HFY20 as works at all construction sites were fully resumed in mid-June 2020.

Source: MIDF Research - 26 Jun 2020