ECOWLD’s 9MFY23 results met expectations. Its 9MFY23 core net profit grew 20% YoY on improved margins and reduced overseas losses. On track to meet its FY23 sales target of RM3.5b with RM3.06b achieved in 10MFY23, it will maintain focus on residential townships and industrial products. We keep our forecasts and TP of RM1.03, but downgrade it to MARKET PERFORM from OUTPERFORM after the recent run-up in its share price.

Within expectations. 9MFY23 net profit of RM186.0m came in at 76% of our full-year forecast and 74% of consensus full-year estimate.

YoY, revenue in 9MFY23 dropped by 7% due to higher turnover in the prior year from the completion of larger parcels. However, a more favourable product mix resulted in an improved gross margin of 26.3% (+3.7ppts). Higher interest income contributed to a 33% increase in other income, consequently resulted in a 19% growth in operating profit. Overall, together with a significantly lower losses attributed by EWINT on better forex performance, ECOWLD’s 9MFY23 net profit grew 20%.

Briefing highlights. Although the group appears to be much within in meeting its sales target of RM3.5b for FY23 (10MFY23 at RM3.06), they sought to keep its FY24 expectations for now.

1. EWINT, its 27%-owned joint-venture is on track to achieve its fullyear sales target of RM1.4b. It has achieved RM1.0b in sales in 10MFY23 but will remain cautious with future launches amidst challenging conditions in UK property market. Similarly on a grouplevel, priority is placed on sustainable profits as opposed to aggressive top line expansion.

2. The RM792m dividends declared by EWINT would translate to RM214m income to the ECOWLD group, which it aims to bolster its land acquisition pipeline.

3. YTD, "Duduk," a product line contributing to 4% of total sales, will likely see a growing proportion thanks to the 6.92-acre land acquired in Kajang to develop Se.Duduk D’Kajang with an estimated GDV of RM500m. Duduk is known for lifestyle-oriented offerings located in matured townships and is preparing for their upcoming launches of new Duduk apartments in Iskandar Malaysia and Penang.

4. With regards to the Johor market, the group emphasized that its properties are mostly supported by local buyers or Malaysian working in Singapore and likely for own-stay purposes as opposed for investment. They have not actively marketed to foreigners given the already strong domestic demand but do not discount the possibility of exploring opportunities here.

5. On industrial products, Eco Business Park I, II, and III continued to see strong take-up. The group are acquiring a 404-acre land in Kulai, Iskandar Malaysia to develop its fifth business park, named Eco Business Park VI to cope with the rising demand. The acquisition should be completed in early-2024 and will grow the group's industrial land holdings to 2,416 acres with an estimated GDV of RM1.58b.

Forecasts. Maintained.

We also maintain our TP based on an unchanged 50% discount to RNAV (vs. an average of 55% for its peers) given the group’s solid ability to push product launches. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

We continue to like ECOWLD for: (i) its strong branding attached to its products’ high quality, strong resale value, and well received contemporary designs, (ii) strong responsiveness to cater to market conditions with a highly flexible product portfolio (i.e. affordable homes, aspirational-priced homes), and (iii) timely presence to tap into Johor’s booming industrial scene. There is a good chance for a special dividend (we project to the tune of 7.0 sen/share assuming a 60% payout) following a lumpy dividend of RM214m from EWINT. However, its valuations have become fair after the recent run-up in its share price. Downgrade to MARKET PERFORM from OUTPERFORM.

Risks to our call include: (i) a prolonged downturn in the local property market, (ii) elevated mortgage rates, hurting affordability, (iii) rising construction cost, and (iv) risks associated with overseas operations.

Source: Kenanga Research - 22 Sept 2023