KEY INVESTMENT HIGHLIGHTS

• FY20 earnings above expectations
• Ended FY20 on a positive note 
• FY20 new sales exceeded sales target
• Earnings estimates revised upwards
• Maintain BUY with a revised TP of RM0.64

FY20 earnings above expectations. Eco World Development Group (ECOWLD) FY20 core net income of RM239.8m came in above expectations, making up 117% and 148% of our and consensus estimates respectively. The earnings surprise could be attributed to stronger than expected property sales in 4QFY20. Note that we have excluded inventories write down and impairment in our core net income calculations. ECOWLD declared a maiden dividend of 2sen per share which translates into dividend yield of 4%.

Ended FY20 on a positive note. Sequentially, 4QFY20 core net income improved to RM106m (+34.5%qoq) due to full resumption of construction works at project sites, higher recognition from new property sales and higher contribution from joint ventures. That led cumulative FY20 earnings to RM239.8m (+16.5%yoy). Core net income improved in FY20 despite lower topline (-18.9%yoy) as earnings were mainly helped by lower expenses and lower financing costs. Note that ECOWLD recorded lower administrative expenses (-22.8%yoy) and lower marketing expenses (-29.6%yoy) due to wide-ranging cost control measures. Besides, financing costs eased by 8.2%yoy due to lower interest rates following OPR cut by Bank Negara Malaysia. On a separate note, ECOWLD’s future revenue declined to RM3.7b as of Oct 2020 from RM4.42b in July 2020.

FY20 new sales exceeded sales target. ECOWLD recorded strong sales of RM1b in 4QFY20, higher than new property sales of RM960m in 3QFY20 as buying interest remains strong after relaxation of MCO restrictions. That brought cumulative new sales in FY20 to RM2.3b which is ahead of management new sales target of RM2b. Looking ahead, its management targets to achieve new property sales of RM2.875b for FY21 which is 25% higher than new property sales of RM2.3b in FY20.

Maintain BUY with a revised TP of RM0.64. We revise our FY21F earnings forecast by +11.1% to factor in the higher than expected property sales achieved in FY20. We also introduce our earnings forecast for FY21F. We maintain our BUY call on ECOWLD with a revised TP of RM0.64, as we narrow RNAV discount to -72% from -75% in view of better earnings visibility. We maintain BUY call on ECOWLD due to its commendable new property sales and attractive valuation. ECOWLD is trading at -68% discount to latest NTA of RM1.59 per share.

Source: MIDF Research - 18 Dec 2020