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Author: PublicInvest   |   Latest post: Tue, 27 Jul 2021, 9:33 AM

 

ECO WORLD DEVELOPMENT - Proven Track Record

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Eco World Development (ECW), which was established in 2014 via a reverse take over of Focal Aims, is led by a strong management team that has a proven track record. As highlighted in our sector report, we believe that larger-sized developers will emerge from the pandemic stronger and potentially benefit from demand recovery amid the low interest rates environment and incentives from the government’s measures such as HOC/PENJANA. ECW is well positioned, in our view, given its established branding/management, prime located land-bank in key growth areas and focus mainly in landed residential township developments and business parks which would benefit with recovery of cyclical sectors. We initiate coverage with an Outperform call and a TP of RM0.98, suggesting a 42% upside. Our valuation is derived based on c.65% discount to our RNAV estimates, effectively priced at ~0.6x price to book value and c.11x PE multiple to its FY22F EPS.

  • 4,519 acres remaining land bank with ~RM65bn gross development value (GDV). ECW has remaining undeveloped land bank measuring 4,519 acres with ~RM65bn GDV. The central region constitutes a bulk of the remaining land bank with 2,516 acres and RM44bn GDV while the Southern region has 1,676 acres (with RM13.3bn GDV). The Northern region has 327 acres with RM7.8bn GDV meanwhile. Assuming yearly sales of RM3-4bn, the undeveloped land bank could last the Group more than 15 years. Latest land acquisition was the 200 acres of freehold land located in Pulai, Johor Bahru, for RM304.9m from Iskandar Investment Bhd which is earmarked for a mixed residential and commercial township development with RM1.67bn GDV.
  • Selling machine. Since its inception, ECW has successfully developed 54% of its total land bank of 8,325 acres and has achieved cumulative sales of RM21.7bn. In the first year alone (13-mth FY14), it sold RM3.19bn worth of properties which was c.60% above its sales target and clinched as high as RM4bn sales in FY17. Last year, ECW surpassed its FY20 sales target by 15% by recording RM2.3bn sales amidst a tough operating environment, especially during 1H2020 (which only generated RM333m sales) before sales rebounded in 2H2020 that saw the Group closing RM1.97bn property sales. It is eyeing RM2.87bn sales in FY21, or c.25% higher YoY. We believe ECW should be selling RM3-4bn in properties yearly as things normalize with the inoculation picking up speed by 2H2021.
  • Valuation. We initiate coverage with an Outperform call and a TP of RM0.98, suggesting a c.44% upside. Our valuation is derived based on c.65% discount to our RNAV estimates, effectively priced at c.0.6x price to book value and c.11x PE multiple to its FY22F EPS. We view the valuation justifiable, given its good track record in execution and product innovation. The management team has the ability to drive the growth momentum of the company, evidenced by its previous success in growing SP Setia’s new sales from RM519 in FY03 to as high as RM8bn in FY13 (or more than double the nearest competitors).

Source: PublicInvest Research - 18 Jun 2021

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