ECOWLD will continue to focus on township and industrial offerings in the Klang Valley and Johor of which demand is still strong. It has plans to expand its affordable housing offerings under the Duduk series. While keeping our forecasts, we raise our TP by 6% to RM1.27 (from RM1.20). We maintain our UNDERPERFORM call as its valuations are rich.

We came away from a recent engagement with ECOWLD feeling reassured of its prospects. The key highlights are as follows:

1. Focusing on townships in the Klang Valley and Johor. For the residential segment, the group will continue to focus on the Klang Valley which accounts for 48% of its total GDV of RM25.7b. Down south in Johor, it is putting into the market the RM3.9b Eco Botanic 3 to position itself for the spillover effect from various infrastructure projects (such as the Johor Bahru-Singapore rapid transport system) and policy initiatives (such as the Special Economic Zone in Forest City). It has intention to expand Eco Botanic 3 by acquiring surrounding land parcels.

In terms of take-up for its products, we gathered that it stands at a solid 80% in the Klang Valley and 90% in Iskandar. While taking comfort in these strong sales performances, we are mindful that developers typically stagger their launches in small batches these days, which naturally resulting in high take-up.

2. Also in affordable homes. It has plans to expand its affordable housing offerings under the Duduk series (<RM650k), which currently only constitutes 1% of the total group GDV (at RM0.5b).

The added appeal of its Duduk series is the locations that are within established townships with existing infrastructure, amenities and community.

3. A bright spot in industrial products. The sales of its industrial products will be underpinned by an outstanding GDV of RM4.0b (6% of total GDV) coming largely from: (i) Eco Business Park 5 in Puncak Alam (RM1.3b with 11 acres remaining), and Eco Business Park 1, 2, and 3 in Johor (RM1.8b with 368 acres remaining). Recall, industrial products made up 24% of its total sales in 1QFY24.

The key drivers for its industrial product sales are: (i) their prime locations (i.e. close to highways); (ii) its ability to offer customisation (for instance, in terms of size and accessibility to utilities and amenities), and (iii) the accelerated industrialisation in Johor due to infrastructure projects and policy initiatives as mentioned.

Outlook. The group’s township projects in the Klang Valley will remain well-received, primarily driven by their good locations and being self-contained and self-sufficient (with shops, malls, schools, recreational areas, etc). It is also garnering a slice of action in the affordable segment driven by urban migration and household formation. It is well positioned to ride on the growing SME sector and the recent wave of foreign direct investment (FDI), both from the West and China, in Malaysia with its industrial products.

Forecasts. Maintained.

Valuations. However, we raise our TP by 6% to RM1.27 (from RM1.20) based on an unchanged 50% discount to its RNAV (vs. an average of 55% for its peers), having brought forward profit recognition for some of its projects. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like ECOWLD for: (i) its strong branding attached to its products’ high quality, strong resale value, and well received contemporary designs, (ii) strong responsiveness to cater to market conditions with a highly flexible product portfolio (i.e. affordable homes, aspirational-priced homes), and (iii) timely presence to tap into Johor’s booming industrial scene. There is a good chance for a special dividend (we project to the tune of 7 sen/share assuming a 60% payout) following a lumpy dividend of RM214m from EWINT. However, we believe its current share price has more than justified its fundamentals. Maintain UNDERPERFORM.

Risks to our call include: (i) recovery in the local property market, (ii) easing mortgage rates improving affordability, (iii) lower construction cost, and (iv) better overseas operations.

Source: Kenanga Research - 15 May 2024