Eco World Development (ECW) delivered a weak 4QFY23 after registering headline net profit of only RM3.3m (+85.1% YoY, -94.2% QoQ). Earnings continued to be dragged by impairment losses (RM82m) recognised due to Eco World International’s (EWI) reduced number of future projects and continued deferral of new launches plus the higher weighted average cost of capital applied to review the investment in EWI as a result of further increases in UK interest rates in FY23. Stripping out the one-off impairment losses, Group FY23 core net profit is estimated at RM271.3m, exceeding our and consensus estimates by 6% and 9% respectively. The Group again demonstrated its selling ability by clinching RM3.61bn sales in FY23, exceeding its sales target of RM3.5bn. It has set FY24 sales target at RM3.5bn, with focus to launch more of its highly marketable ‘duduk’ series throughout its main markets. As for valuations, we keep our earnings unchanged and maintain our Neutral call with an unchanged TP of RM0.88, pegged to ~0.5x PBV. The stock price is currently trading at about 0.6x price to NTA, vis-à-vis average sector discount of about 0.5x.

• Exceeded FY23 sales target after securing RM3.61bn pre-sales during the year, vis-à-vis FY23 sales target of RM3.5bn. Sales, we understand, were broad-based, driven by Eco Business Parks: RM1.04bn industrial sales recorded which is the highest in a single year, Eco Hubs: RM515m commercial properties sold in FY23 (+15% YoY) while total residential sales of RM2.05bn recorded in FY23 came from Eco Townships and Eco Rise (high-rise residential developments which include its popular and affordable “duduk” apartments). For FY24, the Group has plans to unveil more “duduk series” such as Sa.Young D’ Eco Botanic followed by Santai D’ Eco Spring in Johor. In the Klang Valley, it will launch Riang D’ Eco Majestic and Se.Duduk D’ Kajang.

• Eco World International (EWI) sold RM1.18bn in FY23, plus reserves of RM114m, adding up to a total of RM1.30bn, which came in short of its FY23 sales target of RM1.4bn. Embassy Gardens, brought in RM617m sales, and was the biggest contributor to sales, followed by Wardian (RM215m), London City Island (RM107m) and Yarra One (RM91m). As at 31 October 2023, the Group still has approximately RM850m of completed and nearly completed stocks that are available for sale (effective share of these stocks is approximately RM650m). We understand that all launches for the remaining sites will continue to be put on hold given the ongoing weak sentiment amongst homebuyers and significant cost inflation in the United Kingdom. It has 18 existing and upcoming projects in the United Kingdom and Australia with total GDV of GBP4.4bn and AUD0.7bn respectively.

Source: PublicInvest Research - 15 Dec 2023