KUALA LUMPUR: Eco World
Development Group’s (Eco World Malaysia) nine months core net profit made up 90% of CIMB Equities Research and 69% of Bloomberg consensus full-year forecasts.
It said on Friday the results were above expectations due to lower-than-expected selling and marketing expenses, and lower losses at Eco World International (EWI).
The research house said core net profit 3QFY17 ended July 31, 2017 fell 41% despite higher revenue due to lower gross margin, higher finance costs, and higher losses from joint ventures.
“Unbilled sales stood at RM6.2bil at end-Aug 2017, translating into 2.4 times FY16 revenue,” it said
CIMB Research pointed out Eco World Malaysia's 3QFY17 revenue rose 5% on-year due to higher construction progress, and higher number of units sold.
Nonetheless, 3QFY17 earnings came in lower on-year on the back of lower gross margin, down 0.6% pts to 21.4%.
“We believe Eco World Malaysia's gross margin should gradually recover in the coming quarters due to stronger construction progress.
“However, the weak gross margin trend in 9MFY17 suggests that its FY17F gross margin is likely to be lower than FY16’s 23%,” it said.
The group sold RM772mil worth of properties in 3Q17, up 40% on-year. It also disclosed that 10MFY17 sales amounted to RM2.4bil. While this is only 60% of its full-year sales target of RM4bil, the group remains confident of achieving the target.
CIMB Research pointed out Eco World Malaysia's is planning three major launches in the Klang Valley and Penang; “we think these launches will enjoy healthy take-up rates”.
Eco World Malaysia is planning to launch three new projects, namely Eco Forest and Eco Business Park V in Klang Valley, and Eco Horizon in Penang. Preparations are well underway to ramp up the launches of these projects.
“We believe Eco World Malaysia’s FY17 sales target is achievable as its sales typically pick up in the second half of its financial year.
“We increase our FY17F EPS by 16% to reflect lower expenses and lower-than-expected losses in 27%-owned EWI. Nonetheless, we cut our FY18-19F EPS by 2%-6% to reflect higher marketing expenses at EWI as the company ramps up sales for all of its projects in the UK over the next two forecast years,” it said.
CIMB Research retained its neutral stance on Eco World Malaysia as it deems its current valuation as fair.
“In our view, its stronger earnings outlook in FY18-19F is adequately reflected by its year-to-date share price appreciation of 19%.
“On top of that, concerns over its weak gross profit margin could cap its share price upside in the near term, in our view. Our target price remains pegged to a 20% discount to realized net asset value.
“Key upside risk to our Hold call is better-than-expected sales while the key downside risk is deterioration in the local property market sentiment,” it said.
