Analysts remain cautious on earnings outlook for EcoWorld despite strong new property sales momentum

KUALA LUMPUR (March 18): Despite Eco World Development Group Bhd's (EcoWorld) strong new property sales momentum, analysts have expressed reservations and remained cautious on the stock. 

CGS-CIMB analyst Ngo Siew Teng said with the declining household income due to Covid-19, higher property overhang, potential interest rate hikes, rising construction costs and absence of the Home Ownership Campaign (HOC) in 2022, she remained cautious on the overall property market as buyer sentiment could be impacted by these key headwinds.

“We keep our 'hold' call (on EcoWorld) despite the stronger sales momentum and decent dividend yields, given the headwinds ahead and as EcoWorld is currently trading above peers at more than 0.5 times FY23 (ending Oct 31, 2023) forecast price-to-book value (P/BV),” she said.

Her target price (TP) on EcoWorld, however, was revised higher to RM1.01 from 88 sen, based on FY23 forecast P/BV of 0.57 times.

She also noted EcoWorld's core net profit for the first quarter ended Jan 31, 2022 (1QFY22) came in above estimates, largely lifted by the realisation of cost savings of completed and near-completion projects.

She said its 1QFY22 new property sales came in stronger at RM1.09 billion versus RM706 million in 1QFY21, representing 31% of its FY22 forecast new sales target of RM3.5 billion.

“Given its strong sales momentum and a healthy pipeline of products for launch in FY22, we believe the group is on track to achieve its FY22F sales target,” she said, adding that the group’s unbilled sales as at end-February 2022 stood at RM3.9 billion, translating into 1.9 times FY21 revenue.

MIDF Research analyst Low Jze Teing, meanwhile, said that despite the positive outlook for new sales in FY22, she sees the earnings outlook for EcoWorld to be flattish in FY22.

Hence, she maintained her "neutral" call on EcoWorld.

Nevertheless, she revised her TP for EcoWorld to 91 sen from 80 sen as she narrowed her revised net asset value (RNAV) discount to 60% from 65% due to stable new sales prospects of EcoWorld.

Low maintained her EcoWorld earnings forecast as its 1QFY22 core net income of RM61.5 million came in within expectations, making up 25% and 27% of her and consensus full-year estimates respectively.

Kenanga Research analyst Lum Joe Shen also said he maintained his EcoWorld FY22 to FY23 estimated earnings despite higher sales assumption from its subsidiary Eco World International Bhd (EWI) (to RM2 billion from RM1.5 billion) as the aggressive drive for sales by EW Ballymore (EWI’s 75% joint venture) would likely translate to minimal gross profit margins — and consequently break even the bottom line.

He also said EcoWorld's 1QFY22 core net profit of RM63.4 million was well within expectations.

“4MFY22 sales of RM1.28 billion are deemed in line with our RM3.3 billion target (at 38%) as we anticipate weaker sales ahead on mounting headwinds from anticipated increase in interest rates and the absence of HOC. Also, most launches for the year were already done in 1QFY22,” he said.

He maintained "market perform" on EcoWorld with an unchanged TP of 85 sen pegged to 0.51 times FY22 estimated P/BV.

PublicInvest Research analyst Tan Siang Hing, on the other hand, downgraded EcoWorld to "neutral" from "outperform" as the stock market price is nearing his TP of 98 sen.

“The group’s 1QFY22 net profit came in at RM63.4 million which was largely in line with our estimates but above consensus. Group 1QFY22 net profit constituted 24% and 28% of our and consensus full-year estimates respectively,” he said.

At 10.29am Friday, EcoWorld rose one sen or 1.06% to 95.5 sen, valuing the group at RM2.78 billion.

Over the past one year, the counter has gained 56.56%.

Edited by Surin Murugiah

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