By A. Stephanie
Research house UOB KayHian has downgraded Liew Kee Sin-led Eco World Development Group Bhd (EcoWorld) to hold, believing the stock to be fully valued.
“Since December 2014, EcoWorld’s share price has appreciated by over 22%.
“We believe the stock is fully valued for now and hence, we downgrade to ‘hold’ with a lower target price of RM1.90 which takes into account the rights issue that went ex,” it’s analyst said, noting that a good entry price would be RM1.70.
The newly minted property developer posted RM3.1 million in net profits for the financial quarter ended Jan 31, 2015 (1Q15), amounting to only 5% of consensus estimates, as margins dipped.
The lower earnings were mainly due to timing issues, UOB KayHian said, as the recognition of revenue and profit from Eco World Development Sdn Bhd’s developments started from Jan 8, 2015.
“Hence, we expect the company’s earnings to grow exponentially from hereon as the projects progress,” the research house remarked.
However, revenue posted for the quarter was RM158 million, up 151.8% from the preceding quarter.
With RM440 million sales raked in as at end-December 2014, and another RM181 million by end-February 2015, Eco World is still sticking to its RM3 billion sales target for FY15, despite having eight months left on the financial year.
Earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins meanwhile declined by 4.7 percentage points year-on-year, and 0.6 percentage points compared to the previous quarter, on higher marketing expenses.
These, according to the research house, were expenses for free concerts organised in Iskandar Malaysia, the Klang Valley and Penang, which were attended by approximately 75,000 people.
Echoing UOB KayHian’s sentiments on the stock was Maybank KimEng, which maintained its “hold” recommendation on EcoWorld with a higher target price of RM2.06.
Noting that 53% of its locked-in property sales of RM621 million were from its Iskandar Malaysia projects, Maybank KimEng said this only accounted for 21% of its internal sales target of RM3 billion.
“EcoWorld is confident of achieving this target with RM4 billion worth of new launches including its flagship project – Eco Sanctuary, with a gross development value (GDV) of RM8 billion, Eco Terraces (GDV: RM338 million), Eco Tropics (GDV: RM3.4 billion), and Eco Business Park III (GDV: RM2 billion).
“As at end-January 2015, the group’s unbilled sales stood at RM3.1 billion, ensuring medium-term earnings visibility,” the research house said.
CIMB Research maintained its “add” call with a higher target price of RM2.60, believing EcoWorld to be on track to achieve its RM7 billion combined sales for 2015-2016.
It found sales largely in line with expectations as EcoWorld is targeting to sell RM3 billion worth of properties in FY15 and RM4 billion in FY16.
On the group’s restructuring exercise, CIMB recounted that the developer completed the acquisition of land bank from Eco World Sdn Bhd for RM3.8 billion.
It said, “The only outstanding component of the restructuring exercise now is the 20% private placement, which should be completed in 2Q15.
“With the restructuring finally almost completed, EcoWorld’s management can fully focus on operational issues,” the research house said.
Alliance DBS too highlighted the potential of its land bank: “With the completion of the acquisition of development rights, EcoWorld currently owns 4,950 acres of land bank worth RM55 billion GDV, located in property hotspots in the Klang Valley, Penang and Johor.”
Alliance DBS maintained its “buy” call on the property developer with a higher target price of RM2.35.
As at 1pm today, EcoWorld’s share price was RM1.96, down 1% from its opening price of RM1.98.
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