As at May 31, Eco World
KUALA LUMPUR: CIMB Equities Research has upgraded Eco World International (EWI) to Add from Hold as it believes the sharp decline in its share price since IPO is not justified.
It said on Friday that improving sales performance in Embassy Garden is the key potential re-rating catalyst for the stock.
“Key risks to our Add call are a weaker pound and disappointing sales,” it said. Its target price was RM1.15.
CIMB Research said excluding forex translation gains and losses, 2Q17 core net loss widened 1% year-on-year due to higher administrative and general expenses.
EWI sold £207mil worth of properties in London in 7MFY17, bringing the unbilled sales to RM6.7bil as at end-May 2017, based on exchange rates of £1:RM5.40 and A$1:RM3.20.
“The unbilled sales will translate into earnings starting FY18F as EWI recognises revenue only upon the handover of its units.
“We expect the company to report losses in the remaining quarters of FY17F and first half of FY18F as a result of marketing and administrative expenses, which are recognised in the book immediately upon incurrence,” it said.
CIMB Research said EWI’s 7MFY17 sales of £207m in London already made up 66% of its full-year sales forecast as property demand there rebounded faster than expected after the EU referendum last year.
However, the demand in the coming months could weaken due to political uncertainties, caused by the UK election result which dampened investors’ confidence.
“This led us to cut our FY18-19F UK sales forecast by 2-29% and FY18-19F EPS by 23%,” it said.
The research house said despite the cut in sales and earnings forecasts, it thinks the stock is attractive as its share price is down 14% since its IPO (RM1.20) in early April 2017.
EWI raised RM2.6bil from the listing exercise while its current market cap is now slightly less than RM2.5bil.
“We believe the market has overreacted to the negative developments in the UK, such as the surprising election result and tough rhetoric from the EU on Brexit negotiations.
“Two of the three EWI’s projects in London have achieved sales equivalent to 65% of their respective gross development values (GDV) as at end-May 2017.
“Since these two projects (LCI and Wardian) will fully complete only in 2019 and 2020, we believe the risk of having plenty of unsold units upon their completions is low.
“Embassy Garden’s sales performance was comparatively weaker than LCI and Wardian’s as EG’s cumulative sales were only 28% of its GDV.
“Yet, Embassy Garden’s may still achieve healthy sales rate upon its completion as it targets the owner-occupiers. Unlike property projects that target investors (such as LCI and Wardian), projects that target owner-occupiers typically see improving sales performance as they approach completion,” it said.
Win a prize this Mother's Day by subscribing to our annual plan now! T&C applies.
