9M16 earnings of RM99.9m is above market, but within our, expectation. 10M16 sales of RM2.2b came in within expectation of local sales target. No dividends declared, as expected. Earnings estimates are maintained. Target listing of EWI is now Dec 2016. Reiterate OUTPERFORM and TP of RM1.58.

Sales on track. 9M16 earnings of RM99.9m is above market consensus but within our expectation, accounting for 85% and 78% of streetFY16E earnings and ours, respectively. 10M16 sales of RM2.2b came in within expectations at 73% of management’s and our FY16E local sales target of RM3.0b (RM4.0b including EWI sales); note that the soon-to-be listed EWI sales which raked up GBP958m at Aug 2016. No dividends declared, as expected.

Strong earnings momentum. 9M16 earnings jumped by 312% Ytd- YoY largely due to the normalization of billings from new sales garnered when ECOWLD was established. 3Q16 earnings of RM44.6m was up by 29% QoQ on improved billings (+18%) and EBIT margins (+0.7ppt to 10.5%) on proportionately lower sales/marketing and administrative expenses as top line picked up. Net gearing has increased to 0.65x (2Q16: 0.54x). However, given that we expect project deliveries (Eco Botanic, Eco Sky) by 4Q16/1Q17 and the 25% placement (completion in 4QCY16), net gearing is expected to come down to our forecasted levels.

Eating a bigger slice. We have been on the ground recently to compare ECOWLD projects with competitors and we note their strong marketing and concept offerings have set them apart from their competitors. This is critical when buyers are more discerning and cautious in the current challenging times. Last weekend, the group rolled out a Global Launch of four new projects (Eco Ardence, Eco Grandeur, Eco Bloom and Eco Business Park II) consisting of 1,524 units (est. GDV of slightly more than RM1b) with average indicative take-up rate or bookings at 81%. We expect landbanking activities to continue (e.g. it was reported that ECOWLD may revisit the Eco Marina deal) but management prefers to explore non-dilutive fund raising options, including its “Partnership For Growth Model”. EWI’slisting has been delayed to Dec 2016. While FY16E sales target of RM4.0b includes EWI sales (25%), there is no major earnings impact as EWI sales is based on completion rather than progressive recognition.

No changes to earnings. Unbilled sales of RM4.72b provide about 1.8 years’ visibility.

Maintain OUTPERFORM and TP of RM1.58 based on 51% Property RNAV discount and implied FD SoP discount of 45%. Note our valuations already imputed for: (i) ECOWLD stake in Eco Horizon/Sun and Eco Gardens/EBPV at 60% each, (ii) Eco Ardence at 50% stake, (iii) EWI at 30% stake, and (iv) 25% placement to raise c. RM768m. The group is set to benefit from a few major news flows this year, particularly when there is no major excitement in the sector.

Source: Kenanga Research - 28 Sep 2016