EcoWorld 1Q earnings within expectations

Eco World Development Group Bhd (March 17, RM1.55)

Maintain buy with higher target price of RM1.80: Eco World Development Group Bhd’s (EcoWorld) first quarter of financial year 2017 (1QFY2017) net income of RM116.2 million is within expectations at 51% and 68% of our and consensus full-year forecasts. 1Q profit is exceptionally strong due to RM94.8 million gain arising from dilution of equity interest in Paragon Pinnacle (the company which owns the Ijok landbank). Hence, we expect the remaining quarters profit to normalise. No dividend is declared and this is within expectation as the company is still in high growth stage.

The strong revenue growth is due to ongoing recognition of projects in the Klang Valley (Eco Majestic, Eco Sanctuary and Eco Sky), Iskandar Malaysia (Eco Botanic, Eco Spring, Eco Summer, Eco Business Park 1, Eco Tropics and Eco Business Park III) and Penang (Eco Meadows and Eco Terraces).

For the four months of FY2017, EcoWorld secured sales of RM955 million (or 24% of full-year target). We maintain our sales estimate of RM4 billion for Malaysian projects as we expect sales to pick up in the remaining eight months.

Note that EcoWorld plans to launch Eco Horizon at Batu Kawan, Penang, and Eco Forest at Semenyih, Selangor, in the second half of the year.

FY2017 earnings saw an increase by 34% to RM185 million. We have included: i) RM94.8 million gain arising from dilution of equity interest in Paragon Pinnacle; ii) estimated loss contribution from Eco World International Bhd, as profit is only expected from FY2018 onwards (due to UK and Australia’s profit recognition on completion basis); and iii) start-up losses at multiple joint ventures. Unbilled sales of RM6.33 billion reflects 2.5 years of earnings visibility. — MIDF Research, March 17

This article first appeared in The Edge Financial Daily, on March 20, 2017.

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