Target price, downside risks and new national housing policy

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Price is what we pay and value is what we get, says Warren Buffett.  This is the same in every investment. If we buy an undervalued stock, we will soon gain when the market realises its value and pushes it up. If we buy an undervalued property, when market gets better, the price would move up to reflect its value. This is the reason why some property hunters target auction properties too and not just from the primary or the secondary market. Oh yeah, buying overvalued stuffs will not be a clever move yeah.

Here’s a research by CGSCIMB Research published in theedgemarkets.com Briefly, it is putting a target price of RM1.42 to Eco World Development Group Bhd (Ecoworld). It’s trading at RM1.23 on 21st September 2018. It says that Ecoworld’s core net profit for cumulative nine months ending Oct 31,2018 was 53 percent inline and it expects a stronger 4Q for Ecoworld because of ongoing work progress and stronger joint-venture (JV)/associate contributions. It also quoted  the #OnlyEcoWorld campaign in June 2018, which more than doubled total new sales of RM923 million achieved in 1HFY18, representing 57% of its RM3.5 billion FY18 sales target. Eco Ardence was the major sales contributor (RM380 million), followed by Eco Grandeur (RM196 million). Unbilled sales stood at RM6.2 billion as of end-August 2018, translating into 2.1 times FY17 revenue. It gave three reasons why it expects Ecoworld’s earnings to come in stronger:

i) higher revenue recognition as 10 projects will have transitioned into the growth phase of their project life cycles;
ii) JV projects reaching a higher stage of completion and starting to contribute in FY18; and
iii) its 27%-owned EWI turning profitable in FY18.

The only downside risk to the target price would be a sudden deterioration in property market sentiment. Full article in edgemarkets.com here. I think the property market would need some positive catalysts. One example would be the Budget 2019 which will be tabled in November. An earlier catalyst for a more positive sentiment would be that hotly anticipated NEW national housing policy which is scheduled to be unveiled in September by our Housing and Local Government Minister Zuraida Kamaruddin. (Yes, there are just a few days left in September). What the policy would address will be the definition of affordable housing, the future building concept, size and amenities that the ministry intends to incorporate in public and private housing schemes. The policy is also meant to address the current oversupply in the market. Let’s wait for the announcement then since this will mean a lot to the property market in Greater Kuala Lumpur.

written on 26 Sept 2018

Next suggested article: Affordable housing to worsen the unsold units? 

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