Eco World’s 1QFY18 earnings garners mixed reactions
KUALA LUMPUR: Eco World Development Group Bhd’s (Eco World) first quarter of financial year 2018 (1QFY18) earnings has garnered mixed reactions, either coming within or slightly below expectations.
As per a filing on Bursa Malaysia, Eco World’s profit net of tax attributable to owners of the company amounted to RM24.09 million, down from RM116.17 million in the corresponding period of the previous year.
Eco World’s 1Q of 2018 (1Q18) core net profit (CNP) of RM24.1 million came broadly within the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) expectations at 13 per cent of full-year estimates as it expected bulk deliveries in the second half of 2018 (2H18).
Kenanga Research noted that Eco World targets to complete another 4,700 units in FY18.
“Furthermore, we note that 1Q tends to contribute less than 20 per cent of full-year earnings,” it said.
However, Eco World’s first four months of 2018 (4M18) local sales of RM602 million only made up 17 per cent of management’s and Kenanga Research’s target of RM3.5 billion each, which was also deemed as broadly within, considering the festive-holiday periods and the stunning 4Q17 sales performance.
Eco World’s associate, Eco World International Bhd (Eco World International), has achieved RM243 million sales in 4Q18 or 12 per cent each of management’s and the research arm’s target of RM2 billion, again due to seasonally weak 1Q sales activities.
On the other hand, Eco World’s 1QFY18 core net income of RM25.8 million came in slightly below the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) expectations, making up 14 per cent of its and consensus full year estimates.
“The negative deviation could be attributed to the slower than expected progress billing in 1QFY18,” MIDF Research said.
MIDF Research has thus, reduced its FY18 and FY19 earnings forecast by 14 per cent and seven per cent, respectively, to factor in slower progress billing.
The research arm’s core net income for 2018F and 2019F for the group now amounts to RM163 million and RM165 million, respectively.
However, MIDF Research upgraded Eco World to ‘buy’ from ‘neutral’ as value has emerged following the recent decline in share price.
“Valuation of Eco World is attractive as Eco World is trading at 31 per cent discount to its latest book value of RM1.45 per share.
“Meanwhile, new sales are also expected to pick up in the coming quarters.”
As for Kenanga Research, the research arm was in the midst of reviewing its valuations for developers which was experiencing a de-rating on the back of fears of interest rate hikes and oversupply issues.
The research arm noted that the risk premium will be removed when market volatility subsides.
“The applied discount is aggressive for a developer who has activated almost all of its land bank but this also takes into account their high net gearing,” the research arm said.
On its call, Kenanga Research upgraded the stock to ‘outperform’ from ‘market perform’ as it thought the recent sell-down was overdone versus the Kuala Lumpur Property Index (KLPRP).
“Fundamentally, Eco World is still on track to see stronger profits in the coming quarters due to the normalisation of earnings.”
However, Kenanga Research did note investors’ current aversion towards the real estate sector which could cap share price recovery until market uncertainties clear up.