EcoWorld’s 1H18 results garner mixed sentiments
KUCHI NG: Eco World Development Group Bhd’s ( EcoWorld) results for the first half of 2018 ( 1H18) garnered mixed reactions from analysts.
Its core net profit ( CNP) increased by six per cent to RM58.5 million on stronger earnings before interest and tax ( EBIT) margin which saw an increase by 3.2 points due to lower selling, marketing and administrative expenses, and marginally better project margins.
However, as the core net profit were only 33 per cent of consensus’ estimates, the research arm of Kenanga Investment Bank Bhd deemed the weaker-thanexpected results to be below expectations and attributed it to lower- than- expected associate and joint-venture (JV) contributions, especially within Malaysia.
On the other hand, MIDF Amanah Investment Bank Bhd’s research arm ( MIDF Research) deemed that the company’s 1HFY18 earnings as within expectations as it opined that the group’s earnings in 2HFY18 will be stronger.
In a results review report, the research arm explained that it expected EcoWorld to see stronger earnings in 2HFY18 due to the increase in contributions from its associates and JVs while contribution from EWINT is expected to be positive, moving forward.
Kenanga Research also expected the bulk of EWINT contributions to kick in 2H18 but noted that its overall expectations for EcoWorld’s ssociate and JV contributions might have been bullish and as such, it trimmed its FY18 to 19 CNP by 13 to 14 per cent to RM165 to 257 million to reflect more conservative estimates.
“We lower our contributions from the Malaysian portion from slower recognitions at BBCC, Eco Grandeur and Eco Ardence, and also lower our contributions from EWINT as we opt to be conservative on expectations on higher cost from overheads in coming quarter,” it guided.
In terms of sales targets however, both research houses have deemed the current sales figures to be broadly within and expected to ramp up for the remainder of the year.
For sale during the quarters under review, EcoWorld registered RM500 million in 1QFY18 and a lower RM423 million in 2QFY18 due to weak buying interest arising from uncertainties of the GE14.
Whi le the current RM923 mi l l ion in sales is sti ll far from management new sales target fo RM3.5 billion, MIDF Research reckoned that the group might still catch up as it has received encouraging responses to its newly launched # OnlyEcoWorld campaign and EcoWorld Help2Own financing package.
Similarly, Kenanga Research maintained itsr RM3.5 billion sales target for EcoWorld.
Addit ionally, the group’s unbilled sales of RM5.9 billion could provide two years of earnings visibility.
All in, Kenanga Research maintained its ‘market perform’ stance on EcoWorld but with a lower target price of RM1.30 per share as it widened its forward sum of parts discount to 59 from 56 per cent.
“The increased discount is due to the fact that earnings have been tough in light of slowerthanexpected associates and JVs contributions, while sales may be challenging and is reliant on the campaign and Help2Own scheme.
“We are comfortable with our call as the recent sell- down of -13 per cent year to date ( YTD) has been in line with the KLPRP’s -16 per cent YTD drop, while we believe we have priced in most positives due to the normalisation of earnings in coming quarters,” explained the research arm.
Meanwhile MIDF Research maintained its ‘ buy’ call with an unchanged TP of RM1.48 per share based on a 35 per cent discount to RNAV.
“We also maintain our earnings forecast for FY18 and 19 as we expect earnings in 2HFY18 to be stronger on the back of higher contribution from JV and EWINT. Valuation of Ecoworld remains attractive, trading at 17 per cent discount to latest book value of RM1.46 per share,” it added.