EcoWorld Development Berhad (ECW) announced that its wholly-owned subsidiary Eco Botanic 3 Sdn Bhd has entered into agreements which include conditional development agreement with Permodalan Darul Ta’zim Sdn Bhd (PDT) and also a deal to buy a 240.3-acre plot of land located near its existing townships (Eco Botanic and Eco Botanic 2) in Iskandar Puteri from PDT for RM450.1m. The land, we understand, will have an estimated gross development value (GDV) of RM3.88bn. The land cost, at only about 11.6% of GDV, appears to be fair in our view. The land purchase, which will only be paid in staggered payments (ranging from 2.5% to 35.0% of purchase price) over 5 years, is expected to be funded by internal funds and bank borrowings with the exact breakdown only to be determined at a later stage. We understand that the land is earmarked to be developed as a mixed residential and commercial township development which will comprise affordable products (both high-rise and landed) suitable for first time home buyers and the M40 target group. While we keep our earnings unchanged and maintain our Neutral call, we increase our TP to RM1.15, after ascribing lower discount of c.30% (c.50% previously) given its good sales track record and decent dividend yield.

• New land to be developed as Eco Botanic 3. We understand that the new land is strategically located close to Eco Botanic and Eco Botanic 2 which are the Group’s two existing township developments in Iskandar Malaysia. To recap, this will be the Group’s second land deal in Iskandar Malaysia in less than 5 months. In September 2023, the Group announced that it proposed to acquire 403.78 acres of industrial land in Kulai, Johor. Riding on its success in Eco Botanic and Eco Botanic 2, the Group intends to continue to focus on relatively affordable products suitable for first time home buyers and the M40 target group. The cumulative sales of both townships have exceeded RM3.33bn as at 31 October 2023. As such, it plans to develop the new land into a mixed residential and commercial township development with a preliminary estimated gross development value of RM3.88bn, comprising affordable products (both high-rise and landed) suitable for first time home buyers and the M40.

• Aiming to sell RM3.5bn in FY24. For FY24, the Group has plans to unveil more “duduk series” products 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. As for the new land, we understand that it is not expected to have an immediate material impact on the earnings and earnings per share of ECW for FY24 as the deal is only expected to be completed by the end of CY24. Pending more clarity on the proposed launches on the said land, we keep our earnings estimates unchanged for now.

Source: PublicInvest Research - 19 Jan 2024