KUALA LUMPUR: CIMB Equities Research is retaining its positive view on EcoWorld International (EWI) as it expects the property developer to turn profitable in FY18F on the back of the handover of units.
It said on Monday the sharp decline in its share price since its initial public offering (IPO) remains unjustified.
“We reduce our FY18F core net profit forecast by 34% due to the slower sales trend and changes in the handover schedule for the London City Island (LCI) project, but bump up FY19F earnings by 16% as we expect more units to be handed over from the LCI project in FY19F,” it said.
CIMB Research expects EWI to report a major earnings turnaround in FY18F (from losses in FY17F) as it recognises revenue upon the handover of some units for London City Island and Embassy Gardens.
“Maintain Add with a revised target price of RM1.21, as we roll over our realised net asset value (RNAV) valuation to FY19,” it said. The last traded price was RM1.01 and its earlier target price RM1.20.
To recap, EWI posted lower-than-expected losses in FY10/17. FY17 core net loss (excluding forex gains and losses) was 79% of its loss forecast and 89% of Bloomberg consensus full-year loss forecasts.
The factors were mainly due to savings on finance cost following the full settlement of borrowings upon receipt of IPO proceeds on April 2017, and lower joint venture losses for its ventures in London.
Unbilled sales as of end-October 2017 rose RM1.68bil to RM5.85bil, based on exchange rates of £1:RM5.58 and A$1:RM3.24.
EWI recorded RM2bn worth of new property sales in FY17, at only 80% of its RM2.5bil full-year sales target.
Projects in London contributed RM1.69bil while those in Australia generated RM315mil.
The lower-than-expected sales were due to slower demand in Australia as home buyers tend to buy closer to project completion. For FY18, EWI targets to achieve RM2bil sales.
CIMB Research pointed out EWI had teamed up with Willmott Dixon to jointly develop 12 sites in Greater London and South East England.
EWI will acquire a 70% stake in the project sites as well as a 70% stake in Willmott Dixon’s development management arm, Be Living Holdings.
Through the acquisition, EWI will have access to a sizeable landbank of approximately 8,200 residential units with a total gross development value (GDV) of at least £2.6bil.
Upon completion of Stage 1 of the acquisition of its 70% stake in Be Living Holdings, UK and the new project in Macquarie Park, Australia, EWI will have nine projects in the UK and three projects in Australia.
The six project sites in the UK from Stage 1 of the acquisition with an estimated GDV of £1.1bil (RM6bil) will likely be launched in FY18-19, while Macquarie Park with an estimated GDV of A$139mil (RM435.4mil) is expected to roll out in FY19.
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