KUALA LUMPUR: CIMB Equities Research is still positive on Eco World International (EWI) as the group should continue to deliver a significant earnings in FY19F.
The research house said on Friday the earnings would be underpinned by the handover of London City Island (Blocks B,C,D,E,F) and EG (Block A05) in FY19.
“Improved sales performance is the key potential re-rating catalyst. Key risks to our Add call are a weaker sterling pound vs. ringgit, disappointing sales, and weak execution,” it said.
CIMB Research said EWI turned profitable in FY10/18, recording core net profit (excluding forex) of RM42.2mil.
The results were below expectations, at 58% of our and 65% of Bloomberg consensus estimates, due to changes in handover timing of Embassy Gardens (EG).
FY18 JV contribution came in strongly at RM117mil vs. -RM36.5mil in FY17, supported by completion and handover of London City Island Block A and Block M (379 units) since July 2018, and EG Block A04 (70 units) since October 2018.
FY18 new property sales stood at RM3.3bil, exceeding its RM3bil target. Over RM2bil of new sales were from the £389mil en-bloc deal with Invesco Real Estate (IRE) for 1,084
built-to-rent (BTR) homes on its two sites, in Kew Bridge and Barking.
Eco World London (EWL) has formally signed contracts with IRE in early-December 2018, after signing the heads of terms in end-August 2018.
Unbilled sales as at end-October was RM6.6bil, based on exchange rates of £1:RM5.33 and A$1:RM2.97.
“EWI has set a two-year sales target of RM6bil for FY19-20F, without specifying an exact sales target for each year as BTR projects are lumpy in nature.
“This could provide management sufficient time to negotiate a potential en-bloc BTR deal in future.
“We believe this target is achievable as EWL has identified a few of its existing sites (Tesco Barking, North Ealing, Osterley, and Bromley) as being suitable for BTR development,” it said.
CIMB Research cut its FY19F EPS by 16% but bump up its FY20F EPS by 4%, due to changes in its projects' development and handover timeline.
As such, its target price is revised lower to RM1, still based on RNAV valuation. The recently-acquired EWL sites are also likely to contribute additional earnings in FY19F but we expect the contributions to be largely offset by higher overheads for EWL's development management company.
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