KUALA LUMPUR (Sept 25): Eco World Development Group Bhd's (EcoWorld) earnings outlook is expected to be better in the financial year ending Oct 31, 2021 (FY21), said analysts covering the stock.
MIDF Research maintained its "buy" call for EcoWorld with an unchanged target price (TP) of 68 sen based on a 70% discount to its realisable net asset value (RNAV).
The research house said it likes EcoWorld for its commendable new property sales and attractive valuation.
“EcoWorld is trading at a 74% discount to its latest NTA (net tangible assets) of RM1.57 per share. The earnings outlook is expected to be better in FY21 on the back of a pickup in progress billings.
“We revise our FY20-21 earnings forecasts by +40.2%/+27.9% to factor in lower-than-expected expenses,” said MIDF analyst Jessica Low Jze Teing in a note today.
She said the property developer’s core net income for the cumulative nine months ended July 31, 2020 (9MFY20) of RM133.8 million came in above MIDF’s expectations, making up 92% and 95% of its and the consensus full-year estimates respectively.
The MIDF analyst noted that the positive deviation could be attributed to lower-than-expected expenses in the third quarter ended July 31, 2020 (3QFY20).
To recap, EcoWorld’s net profit for 3QFY20 dropped to RM13.8 million, versus RM50.48 million a year earlier, mainly due to the group’s decision to write down its inventories by RM65 million. Meanwhile, its quarterly revenue was down to RM477.87 million from RM521.37 million previously.
Meanwhile, Kenanga Investment Bank Bhd increased its core net profit (CNP) estimates for EcoWorld post increasing its FY20-21 CNP margin forecasts to 12.2%-13% (from 8.7%-10%) versus the current level of 9.9% on expectations of a better product mix as well as cost control efforts going forward.
Kenanga analyst Marie Vaz said: “Unbilled sales of RM4.4 billion provide over two years’ visibility.”
Kenanga upgraded its call to "outperform" (from "market perform" previously) with a higher TP of 49 sen (from 44 sen) post increasing its price-to-book value (P/BV) valuation to 0.34 times from 0.29 times on an adjusted book value per share of RM1.46.
According to the analyst, that is after imputing a 40% discount to the group’s latest inventory level of completed properties, in view of the prevailing market down cycle and the pre-existing challenging property climate.
“We increase our valuation on expectations of better margins for the coming quarters as the group continues to focus on cost control efforts and assuming there are no further hiccups in work progress. We think an improving economy in the coming months should also be positive for sales momentum,” she said.
However, Vaz noted some key risks related to the "outperform" call, which include weaker-than-expected property sales and higher-than-expected overheads or finance.
At the time of writing today, shares in EcoWorld were unchanged at 40.5 sen, valuing the group at RM1.19 billion. Some 1.35 million shares changed hands.