1HFY22 CNP of RM109m and a 2.0 sen came within expectations. 7MFY22 sales of RM2.17b is also considered inline as rising interest rates is likely to slow sales momentum for the rest of the year. With share price coming off 30% since April, ECOWLD’s current dividend yield of 5.9% has turned appealing against peers’ average of 3.5%. Moreover, we foresee the company withstanding industry headwinds and defend its margins better against peers with its landed products and nimble cost structure. Hence, we turn positive and upgrade to OP (from MP) with marginally reduced TP of RM0.83 after switching our primary valuations to 60% discount to RNAV (from PBV).

Within expectations. 2QFY22 CNP of RM45.7m led 1HFY21 CNP to RM109m - within our/consensus expectations at 46%/47% of fullyear estimates. A 2.0 sen interim dividend was also in line with our 4.0 sen estimate. We expect the remaining 2.0 sen dividend to be announced in 4Q quarterly announcement.

Sales also within. In the 3 months from March-May 22, ECOWLD raked in sales of RM0.894b which led 7MFY22 sales to RM2.17b. This is broadly within our RM3.3b target (at 66%) as we anticipate sales momentum for the rest of the year to be weaker on – rising interest rates and lower new launches. Company reiterate their sales target of RM3.5b. Meanwhile, EWINT’s (ECOWLD’s 27% JV) 7MFY22 sales of RM1.142b is within ours/company’s target of RM2.0b. As of May-22, unbilled sales stood at RM3.93b.

Highlights. 2QFY22 CNP of RM45.7m came off 28% QoQ mainly due to higher share of losses (+8.9x) at its EWINT JV. EWINT took an impairment during the quarter as they lower selling prices for some on their Central London products (at EW-Ballymore). 

YoY, 1HFY22 CNP of RM109m was marginally stronger by 4% on higher revenue (+12%) and stronger GP margins (+3ppt) which were more than enough to offset the weaker contributions from EWINT.

Outlook. Despite the rising construction costs, we think that Ecowld would able to defend their operating margins relatively well through product innovation (higher PSF but smaller area), prudent marketing expense and its lean workforce. That said we do expect the rising OPR to pose headwinds towards sales. Meanwhile, the company guides that the ongoing labour shortages are manageable and work at sites have been progressing as planned.

Balance sheet wise, its net gearing continues to improve for the 14th consecutive quarter and currently stands at 0.36x (net debt of RM1.7b). The well managed cash levels assure us that our dividend targets are sustainable.

Keep FY22/23E earnings post earnings. 

Upgrade to OUTPERFORM with marginally lower TP of RM0.83 (from RM0.85). Given the 30% slide in share price since end-April, current dividend yield of 5.9% has turned appealing against our coverages’ average of 3.5%. Coupled with the company’s ability to manoeuvre current headwinds and defend margins, we upgrade Ecowld to OUTPERFORM (from MP) on marginally reduced TP of RM0.83 (previously RM0.85) after switching our primary valuation methodology to 60% discount to RNAV (from 0.51x PBV).

Source: Kenanga Research - 17 Jun 2022