ECOWLD’s 1QFY23 results met expectations. Its 4MFY23 sales of RM1.35b indicated that it is on track to meet its full-year target of RM3.5b. The sales were anchored by the sale of a 92-acre land in Eco Business Park II (EBP II) to China-based industrial equipment maker Haitian International Holding Ltd (Haitian) which may draw its suppliers and customers to EBP II. We maintain our FY23F earnings, TP of RM0.83 and OUTPERFORM call.

Within expectations. 1QFY23 core net profit of RM57m met expectations at 23% each of both our full-year forecast and the full year consensus estimate.

Highlights. 1QFY23 core net profit decreased by 10% mainly due to wider associate losses (from its 10%-owned BBCC mall), higher financing costs (+25%) on higher interest rates and a higher effective tax rate (+9ppts).

The key takeaways from its post-results briefing are as follows:

1. ECOWLD achieved RM1.35b sales in 4MFY2 which is on track to meet its FY23 sales target as well as our FY23F sales assumption of RM3.5b. Industrial products contributed to the lion’s share at RM616m, on the back of a 92-acre land sale in EBP II to Haitian (HKEX-listed with a market cap of RM17.3b). This land sale is strategic to ECWLD as Haitian, a leading industrial equipment manufacturer from China, may draw its suppliers and customers to EBP II too (99 acres of land are still available).

2. For the subsequent quarters, the group has earmarked several launches for its “duduk” products (high-rise residential for first time house buyers) across its matured townships. These products will be key sales drivers for the rest of the year. Its recent launch of Hana (its second “duduk” product at Eco Ardence) in mid March 2023 attracted a strong 45% take-up rate within a span of only two weeks.

3. It reiterated its plans to acquire land within the Klang Valley and Johor regions. The ideal size is <300 acres with immediate development potential that can last for 8-10 years. Its healthy balance sheet with a net gearing of 0.33x as at end-Jan 2023 can comfortably meet the financial requirements.

4. Its 27%-owned joint-venture EWINT achieved 4MFY23 sales of RM335m and is on track to meet its internal sales target of RM1.4b. EWINT intends to distribute RM900m dividends to its shareholders (ECOWLD’s effective share would be RM243m) if its RM1.4b sales target is met. As of 1QFY23, EWINT’s net cash level stood at RM436m.

Forecasts. We maintain our FY23F earnings and introduce our FY24F earnings or RM247m backed by sales of RM3.5b.

We continue to like ECOWLD for its ability to manoeuvre the current headwinds and defend margins given its strong branding and nimble cost structure. Consequently, this translates to strong cash flows generation, underpinning consistent dividends. We keep our TP of RM0.83 based on 60% discount to RNAV – in line with peers’ discount range of 60%-65%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5). Maintain OUTPERFORM.

Source: Kenanga Research - 24 Mar 2023