KUALA LUMPUR: Maybank Investment Bank Research has upgraded ECO WORLD to a Buy with a new target price of 80 sen, which is 26% above its last traded price of 64 sen.
In its research note issued on Friday, it maintained its EPS but lowered its realized net asset value (RNAV) estimate to RM1.99 (- 13 sen) as it raised discount rates for ECW’s projects.
“Our new TP is 80 sen, based on an unchanged 0.4 times price/RNAV. We think concerns about its high gearing have been largely priced in and upgrade ECW to BUY given the more than 25% upside potential to our TP, ” it said.
On whether ECW was seeking a merger to aid in its de-leveraging, Maybank Research said ECW management has neither confirmed nor denied these reports.
“In our view, ECW’s high net gearing of 0.75 times could deter merger prospects. Elsewhere, management’s medium-term focus remains improving its balance sheet through executing unbilled sales and enhancing the value of its existing township, ” it said.
Maybank Research sasid ECW shares continue to sell off due to weak property market outlook and now offer compelling value in our view.
“We met both ECW and UEM Sunrise (Buy; TP 95 sen) recently. Both declined to comment on the media reports suggesting a merger.
“On our part, we see minimal synergies from any ECW-UEMS tie-up. Instead, we think ECW and Sime Darby Property (Buy; RM1.18 TP) would make better partners as the two have a number of unique complementary characteristics.
“Combined, we believe the two could evolve into the largest developer with a top-notch management in the country, ” it said.
The research house said ECW management’s medium-term focus remains strengthening its balance sheet via: i) inventory monetisation.
Completed inventories surged to RM540mil as at end-3QFY19 (+1.54 times on-quarter); and ii) executing unbilled sales of RM4.3bil (1.4 times of its FY20E revenue).
On top of the various incentives under the National Home Ownership Campaign (NHOC), ECW also launched its own HOPE (Home Ownership Programme with EcoWorld) campaign.
So far, it has locked-in RM1.9bil sales in 10MFY19; this accounts for 72% of its FY19 assumption of RM2.7bil (4Q sales historically stronger).
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