This article first appeared in The Edge Financial Daily, on January 6, 2016.

Eco World Development Group Bhd
(Jan 5, RM1.43)
Initiate buy with target price (TP) of RM1.88: Eco World Development Group Bhd (EcoWorld) is a Malaysian property developer with 7,443.9 acres (3,012.44ha) of land bank and gross development value (GDV) of RM81.16 billion, with projects in three key economic regions in Malaysia namely Klang Valley, Penang and Johor.

Out of the total land bank, 6,275 acres (or 84%) are still undeveloped with remaining GDV of RM74.96 billion (or 92% of total GDV).

In financial year 2015 (FY15), EcoWorld achieved property sales of RM3.02 billion (100% from Malaysia). This is higher compared with peers’ estimated sales for FY15 between RM500 million to RM2.3 billion.

We expect strong year-on-year core earnings growth of 183% in FY16 to RM124.8 million as contributions from key projects such as Eco Majestic, Eco Sanctuary and Eco Sky are expected to be recognised.

Note that EcoWorld has strong unbilled sales of RM4.16 billion as of end-FY15 and its FY16 earnings are expected to grow by 183%, much higher than peers’ average of 13% growth.

Our estimate shows that the current share price of RM1.43 values EcoWorld at 0.57 times price-to-revalued net asset valuation (PRNAV) or -1.26 Standard Deviation (SD) below mean PRNAV. 

We believe that the current valuation is not justified as the group has proven to have secured highest property sales in Malaysia with superior earnings growth against its peers, coupled with experienced management.

Initiate coverage on EcoWorld with a “buy” recommendation and a TP of RM1.88 based on PRNAV of 0.75 times, reflecting 0.5 SD valuation above mean.

We believe that EcoWorld deserves the slight premium valuation of 0.5 SD. This is due to its excellent sales achievement, superior earnings growth prospects and strong branding. Catalyst for the stock will be the successful achievement of sales target and earnings delivery. — MIDF Research, Jan 5