• 9MFY10/22 core net profit came in below expectations, due to higher-thanexpected share of loss from Eco World International. 
• 10MFY10/22 new property sales were stronger at RM3.44bn (vs. RM3.11bn in 10MFY21). Its second interim DPS of 1 sen was above expectation.
• Reiterate Add, with a revised TP of RM0.82, given the decent dividend yields, strong property sales momentum and improving balance sheet.

Key results highlights

Eco World Development Group's (EWDG) 9MFY10/22 core net profit was below expectations, at 67% of both our and Bloomberg consensus’ full-year forecasts, largely due to higher-than-expected share of loss from Eco World International. 9MFY22 core net profit improved 7% yoy, mainly attributed to stronger sales (+8% yoy due to higher percentage of project completion) and higher gross margin (+3.6%-pts yoy on realisation of cost savings from completed/near completion projects). Qoq, 3QFY22 core net profit rose 5%, largely supported by stronger contribution from local JVs on realisation of cost savings (Eco Grandeur and Eco Horizon), and lower tax expense (-30% qoq).

Stronger 10MFY22 new property sales

10MFY22 new property sales came in at RM3.44bn (vs. RM3.11bn in 10MFY21), representing 98% of its FY22F new sales target of RM3.5bn. The key contributors of 10MFY22 new property sales were Eco Business Park I, II and III (RM446m), Eco Horizon (RM448m), and Eco Majestic (RM401m). We gather that EWDG’s industrial product sales (Eco Business Park I, II, III and V) stood at RM730m as of 10MFY22, up 84% yoy on stronger demand, following the reopening of borders in Apr 22. Unbilled sales as at end-Aug 2022 stood at RM4.2bn (vs. RM4.1bn as at end-Aug 2021).

Declared second interim DPS of 1 sen

EWDG declared a 1 sen second interim DPS, which was unexpected as the group usually declares dividends in 2Q and 4Q. This brings 9MFY22 DPS to 3 sen (vs. 2 sen in 9MFY21). We leave our DPS forecast unchanged pending management’s guidance. We expect the group to, at the very least, sustain its FY22F DPS at a similar level as FY21’s 4 sen (>5% dividend yield).

Reiterate Add

Our TP is revised up to RM0.82, as we roll over our valuation year from FY23F to FY24F, still based on P/BV of 0.45x (-0.5 s.d. of its 5-year mean P/BV). We use a 5-year mean P/BV to reflect its trading range pre- and post-Covid-19 lockdowns following business normalisation. Retain Add, given the strong sales momentum and improving balance sheet. The stock is also supported by decent FY22-24F dividend yields of >5%.

Re-rating catalysts and key risks to our call. Steady new property sales momentum and attractive dividend yields are key potential re-rating catalysts for its share price. A sudden deterioration in property market sentiments is the key downside risk to our call.

Source: CGS-CIMB Research - 15 Sep 2022