EcoWorld's FY20 sales target said achievable despite lower sales in first six months

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KUALA LUMPUR (June 26): The RM2 billion sales target set by Eco World Development Group Bhd (EcoWorld) for its financial year ending Oct 31, 2020 (FY20) is still achievable despite the lower sales achieved in the first six months of the year due to the Movement Control Order (MCO), said CGS-CIMB.

In a research note today, it said the group could hit its current target — which is subject to revision once market conditions normalise — due to its good sales momentum and aggressive marketing initiatives.

CGS-CIMB noted that its new property sales as at June 15 amounted to RM975 million, while its booking pipeline was around RM600 million.

In an announcement yesterday, EcoWorld said the mandatory closure of all its sales galleries and construction sites throughout the MCO period affected earnings, with revenue for the second quarter ended April 30, 2020 falling 36.4% to RM345.4 million from RM543.18 million a year ago.

Its net profit fell 48% to RM21.39 million from RM41.17 million previously as a result of the quieter period.

The dismal quarterly performance dragged EcoWorld's net profit for the first half of the financial year ended April 30 (1HFY20), plunging 23.19% to RM54.91 million versus RM71.49 million. Similarly, revenue fell 14.6% to RM883.35 million versus RM1.03 billion a year ago.

CGS-CIMB said EcoWorld's net profit for 1HFY20 came in below the research house and market's expectations, at 11% of their full-year earnings estimates each.

Given the weaker-than-expected results, the research house cuts 20% of its earnings per share (EPS) forecast for FY20.

But it raises its EPS estimates by 0.1% to 20% for FY21 and FY22. It now forecasts 4.9 sen EPS for FY20, 3.8 sen for FY21 and 2.6 sen for FY22.

Nonetheless, the EPS projections were lower compared with 6.9 sen the group posted for FY19.

The research house reiterates "hold" call with an unchanged target price of 47 sen for EcoWorld, citing that rating was given due to EcoWorld's weaker sales trend based on a yearly basis and a relatively higher net gearing versus than the average 0.3 times of its peers.

According to the report, EcoWorld's net gearing stood at 0.75 times as at FY19. It expected the group's net gearing to increase to 0.8 times for FY20, and further grow to 0.9 times for FY21 and 0.93 times for FY22.

Similarly, MIDF Research cuts its earnings projection after it said EcoWorld's 1HFY20 core earnings of RM55 million were below its expectations, meeting only 29% of the research house and 30% of consensus' estimations.

MIDF Research cuts its earnings forecasts by 22.4% for FY20 and 7.7% for FY21 after factoring in the delay of the construction progress resulting from MCO. It now anticipates the group to generate annual earnings of RM146 million for FY20 and RM192 million for FY21.

Notwithstanding that, MIDF Research said EcoWorld's valuation remains attractive, with its share price trading at 73% discount to its latest net tangible assets of RM1.56 per share.

"Besides, earnings of EcoWorld are expected to recover in 2HFY20 as works at all construction sites fully resumed in mid-June 2020," it added.

Hence, MIDF maintaines "buy" recommendation for the stock with a lower target price of 61 sen, from 73 sen previously.

Bloomberg data show that EcoWorld has eight analysts covering it. Two of them have it on "buy" while six place it on "hold", with a 12-month consensus target price of 54 sen.

As at 3.50pm, the stock traded half a sen or 1.19% lower at 41.5 sen, after some 6.61 million shares exchanged hands, giving it a market cap of RM1.24 billion.

Over the past one year, the stock has fallen 51% from 85 sen.