KEY INVESTMENT HIGHLIGHTS

• 9MFY20 earnings beat expectations
• Earnings helped by lower expenses
• 9MFY20 new sales at RM1.58b
• Earnings estimates revised upwards
• Maintain BUY with an unchanged TP of RM0.61

9MFY20 earnings beat expectations. Eco World Development Group (ECOWLD) 9MFY20 core net income of RM133.8m came in above expectations, making up 92% and 95% of our and consensus full year estimates respectively. The positive deviation could be attributed to the lower than expected expenses in 3QFY20.

Earnings helped by lower expenses. On sequential basis, 3QFY20 core net income surged to RM78.8m (+270.5%qoq) as construction works were fully resumed in June post Movement Control Order (MCO) in March. Note that we have excluded write down of inventories of RM65m in our core net income calculations. Meanwhile, 9MFY20 cumulative earnings were higher at RM133.8m (+9.7%yoy) despite lower topline at RM1.36b (-12.5%yoy) as earnings were helped by lower expenses. ECOWLD recorded lower administrative expenses (- 23.7%yoy) and lower marketing expenses (-21.5%yoy) due to wideranging cost control measures. On a separate note, ECOWLD’s future revenue recorded at RM4.42b as of July 2020, declining marginally from future revenue of RM4.6b in April 2020.

9MFY20 new sales at RM1.58b. 3QFY20 new sales jumped to RM960m from RM28.5m in 2QFY20, driven by strong buying interest from property buyers post MCO and RM242m en-bloc sale of serviced residence in BBCC to Mitsui Fudosan. That led total new sales to RM1.58b in 9MFY20. New sales in 9MFY20 were in line with management expectation as it makes up 79% of management sales target of RM2b. Hence, management is maintaining its new sales target at RM2b for FY20.

Maintain BUY with an unchanged TP of RM0.61. We revise our FY20/21F earnings forecasts by +40.2%/+27.9% to factor in the lower than expected expenses. We maintain our BUY call on ECOWLD with unchanged TP of RM0.61, based on 73% discount to RNAV. We like ECOWLD for its commendable new property sales and attractive valuation. ECOWLD is trading at 74% discount to latest NTA of RM1.57 per share. Earnings outlook is expected to be better in FY21 on the back of pick up in progress billing.

Source: MIDF Research - 25 Sept 2020