FY19 CNP of RM201m came in above our (117%) and consensus (112%) expectations. FY19 local sales of RM2.7b is within (100%) and 27%-owned associate EWINT’s overseas sales of RM1.1b* are deemed below our expectations (51%). No dividends was declared, below expectations. Both ECOWLD and EWINT are maintaining sales target of RM12b* over FY19-20. We increase FY20E CNP by 4% to RM217m and introduce FY21E CNP of RM234m. Downgrade to MP (from OP) following the recent share price surge with an unchanged TP of RM0.750 (based on P/BV method).

Above expectations. FY19 CNP of RM201m came in above our (117%) and consensus (112%) expectations. This was due to stronger revenue recognitions as top-line came in at 115% of our estimate as well as strong contributions from EWINT. FY19 sales of RM2.7b on the other hand were positively spot on with our estimate making up 100% of our sales target. EWINT (27% associate) recorded RM1.1b* sales over FY19, which we deem as below our FY19E target of RM2.19b*, but management maintained the 2-year guidance target of RM6b as such we believe the bulk of sales will be back loaded to FY20 (RM4.9b) as it is expected to be lumpy from London build-to-rent (BtR) projects, and also given the challenging London market prior to the Brexit outcome. No dividends were announced which was below our estimates of 0.9 sen in FY19 as we expected maiden dividend in FY19.

Results’ highlight. YoY-Ytd, top-line jumped by 24% on increased recognitions on most Klang Valley and Johor projects and one Penang project (Eco Meadows). Despite slightly weaker EBIT margins (-1.2ppt), CNP was up by 115% on: (i) higher associate/JV contributions (+429%) from greater work progress at Eco Grandeur, Eco Business Park V, Eco Horizon, Eco Ardence and Bukit Bintang City Centre (BBCC) as well as contributions from EWINT (vs. RM3m effective losses previously), and (ii) normalised effective tax rate of 24% (vs. 29% in FY18). QoQ, top-line leaped by 74% due to higher recognitions as mentioned. As a result, CNP was up by 57% bolstered by the bump in contributions from associate/JV contributions (+75%) from both local JV projects and EWINT, but was weighed down by slightly weaker EBIT margin (-3.0ppt) due to sales campaigns in FY19 (i.e. HOC) and higher financing cost (+11%). Meanwhile, net gearing has eased from 0.77x end-FY18 to 0.72x end- FY19.

Upgrade FY20E CNP by 4% to RM217m (from RM209m) and introduce FY21E CNP of RM234m on FY21 sales of RM3.0b. We increased FY20E CNP on a higher top-line from higher recognitions on quicker-than-expected progress billings, but lowered our EBIT margin slightly to 10% closer to FY19 level of 9% (from 11%) given the slightly challenging property market conditions. EWINT contributions are largely unchanged (refer overleaf). We also expect a 1.1-1.2 sen dividend in FY20-21E implying 1.4-1.6% yield. Unbilled sales of RM5.2b provide 2-3 years’ visibility.

Downgrade to MARKET PERFORM (from OP) on an unchanged Target Price of RM0.750with of RM0.750. We are switching to a P/BV valuation method (from RNAV) which represents a more conservative approach to ascertain the trough valuations of property stocks amid the prevailing market down cycle. Our TP is based on P/BV of 0.51x (@ -1.5 SD of its 3-year historical band) on an adjusted BV/share of RM1.46 (after imputing a 40% discount to its latest available inventory level of completed properties). Our call on ECOWRLD is downgraded given limited upside to valuation post the aggressive price run-up (+19% over 2 days) which could have priced in the strong property sales and JV contributions as captured in its FY19 result.

Risks to our call include: (i) stronger/weaker-than-expected property sales, (ii) higher/lower-than-expected overheads/finance costs, (iii) timing of EWI project deliveries, and (iv) changes in real estate policies/lending environment.

Source: Kenanga Research - 13 Dec 2019