■ EWDG achieved 87% of its FY23 sales target of RM3.5bn in 10MFY10/23. Unbilled sales remain high at RM4.22bn as at 31 Jul 23 (c.2.1x cover ratio).

■ We believe it is poised to ride the rise in demand for industrial products, as c.34% of its land bank is designated for industrial development.

■ In view of its diversified product range, low gearing ratio and decent dividend yields, we reiterate Add, with an unchanged TP of RM1.34.

Higher sales, improved margins, higher profit

● Eco World Development Group (EWDG) yesterday reported 3QFY10/23 core net profit (excluding impairment, write-down and forex) of RM65.5m (+45% yoy; +5% qoq), taking 9MFY23 core net profit to RM184m (+23% yoy). This was in line, accounting for 77% of our and Bloomberg consensus FY23F estimates. The higher earnings were driven by higher revenue (+7% yoy), improved EBITDA margin of 19% (vs. 14% in 3QFY22), as a result of cost savings and better site progress as well as lower losses from its 27%-owned associate Eco World International (EWI).

● EWDG declared a second interim dividend of 2 sen (3QFY22: 1 sen) taking 9MFY23 dividend payout to 4 sen (9MFY22: 3 sen).

Achieved 87% of its FY23F sales target of RM3.5bn

● For the 10 months up to 31 Aug 23, EWDG achieved property sales of RM3.06bn, which accounted for 87% of its FY10/23 sales target of RM3.5bn, ahead of its target. Key contributors were landed residential (44% of total sales) followed by industrial products (33%) and commercial properties (14%). Geographically, Eco South and Eco Central contributed equally to 10MFY23 sales at 47% each, while Eco North only contributed c.6%. The Duduk series (<RM650k price point) contributed c.4% to 10MFY23 sales.

● Unbilled sales stood at RM4.22bn as at 31 Jul 23 (c.2.1x cover ratio ).

To balance land bank growth and dividend payout

● EWDG guided that it will likely launch two more Duduk series in 4QFY23 – the Eco Botanic in Iskandar Malaysia (Southern region) and Eco Horizon in Penang (Northern region). We believe given the affordable price points, coupled with EWDG’s premium branding, the potential launches in the South and North will likely replicate the success of the Duduk series in the Central region, where take-up rate was 80-100% in 2022.

● As at 31 Aug 23, the group had a land bank of 3,413 acres, including the recentlyacquired 403.7 acres in Kulai, Johor. The geographical breakdown of the rest of its land bank – 53% in the Central region, 40% in the South and 7% in the North. Some 34% (1,176 acres) of its total land bank is designated for industrial development, and the remaining 66% (2,237 acres) for mixed township development.

● Management indicated that EWI will likely exceed its guided RM900m dividend payable estimate of RM900m (EWDG’s 27% stake will translate to c.RM243m), due to the strengthening of the British Pound and lower estimated requirement for working capital. The group indicated that while EWDG will seek to balance growth and dividend payout, it will prioritise more land banking exercises for the group’s future growth.

Reiterate Add, with unchanged TP of RM1.34

● We keep our earnings forecasts and TP of RM1.34, based on 0.8x FY24F P/BV, 0.5 s.d. above its 5-year historical mean. Reiterate Add. We like EWDG for its diversified product range (exposure in industrial, landed residential and affordable residential), lo w gearing level (0.31x as at 31 Jul 23) and decent dividend yields (4.5-6.0% for FY23-25F).

● Potential re-rating catalysts: 1) stronger-than-expected sales for its existing projects and new launches and 2) timely completion of projects. Downside risks are larger-thanexpected losses from its international joint ventures and lower-than-expected take-up rate for its industrial and affordable products.

Source: CGS-CIMB Research - 22 Sep 2023