Surpasses FY22 Sales Target Eco World Development (ECW) recorded headline net profit of RM1.8m (- 95.8% YoY, -96.2% QoQ) mainly due to an RM81m impairment on Eco World International’s projects as higher weighted average cost of capital was applied to discount the estimated future cash flows from EcoWorld International, given the more than 200-basis point increase in UK risk-free rates as at 31 October 2022. Excluding the impairment, Group FY22 net profit of RM238.2m came in above our and consensus expectations at 112% and 113% of full year estimates respectively. ECW exceeded its FY22 sales target (at RM3.50bn) by a comfortable margin after recording its highest ever sales of RM3.84bn in FY22, surpassing its previous record high of RM3.82bn achieved in FY16. We adjust our FY23/24 slightly higher by an average of 2% to reflect the better-than-expected sales. The Group declared a third interim dividend of 2 sen per share in 4QFY22, bringing total dividends declared for FY22 to 5 sen per share. All told, we upgrade ECW from Neutral to Outperform given ECW’s attractive risk-reward proposition, pegging the TP to an average of -1SD and mean PBV. We are also assuming higher dividend of 5 sen (from 4 sen for FY23-25) and believe that the Group could continue its sales momentum and offer attractive dividend yield of more than 7% at current share price. Interestingly, it is also considering a potential share buy-back.

• Record high pre-sales at RM3.84bn. The group’s pre-sales rebounded strongly from pandemic-low of RM2.3bn to a record high at RM3.84bn (vs. RM3.52bn in FY21), surpassing its FY22 new sales target of RM3.5bn. As for product market segment, we understand that 44% of FY22 pre-sales came from residential properties priced above RM650k, 17% from residential properties priced below RM650k, 20% from business parks/industrials, 12% from commercial properties and 7% from others. The Group set a flattish RM3.5bn for FY23 with the focus of improving profit margins especially from mature townships. Unbilled sales as at end FY22 stood at c.RM3.6bn.

• EWI targets RM1.4bn in FY24. Eco World International Bhd (EWI) recorded a higher net loss of RM95.7m in 4QFY22, mainly due to further impairment on the group’s investment in EcoWorld-Ballymore in London. For FY22, EWI suffered a net loss of RM234.42m which is the group’s highest annual net loss since its listing. Meanwhile, EWI achieved RM2.2bn sales in FY22, rising by 57% YoY and 8% above its RM2bn sales target for FY22. EWI has set a sales target of RM1.4bn for FY23 which does not include potential contribution from new launches. Management expects to generate cash of more than RM1bn from selling its completed properties.

Source: PublicInvest Research - 19 Dec 2022