ECOWLD’s 1QFY24 results met expectations. Its 1QFY24 core net profit grew 22% YoY on improved margins and reduced overseas losses. It is on track to meet its FY24 sales target of RM3.5b with RM1.3b achieved in 1QFY24. We keep our forecasts but raise our TP by 20% to RM1.20 (from RM1.00). Maintain UNDERPERFORM.

ECOWLD’s 1QFY24 core net profit of RM69.6m met expectations, coming in at 24% and 26% of our full-year forecast and the full-year consensus estimate, respectively.

YoY, its 1QFY24 revenue increased by 11% due to higher contributions from active and newly launched phases. Its core net profit grew by a strong 22% as higher interest income and the turnaround in EWINT (on favourable forex movements), more than offset a high base from a year ago due to bumper profit recognition from completed units.

QoQ, its 1QFY24 revenue declined 36% from a bumper quarter previously due to the completion of its 92-acre industrial land sale in Eco Business Park II. However, its 1QFY24 core net profit only declined by 18% as lower contributions from Malaysian JVs (from a high base in 4QFY23 due the handover of completed BBCC units) were cushioned by the turnaround in EWINT.

Briefing highlights. Although the group appears to be much within in meeting its sales target of RM3.5b (1QFY24 at RM1.3b), they sought to keep their FY24 expectations for now.

1. With the 1QFY24 sales at 36% of the full-year target, the group’s focus remains to improve returns from its landbanks by achieving higher margins or maximizing yield of developed lands while continuing to sustain good dividends for shareholders. The group also appears to have a greater appetite for land acquisition, mainly in Klang Valley and Iskandar Malaysia, backed by their lower reported gearing of 0.28x.

2. EWINT, its 27%-owned joint venture, reported sales of RM243.0m in its 1QFY24, on track to meet its full-year sales target of RM850.0m. That said, caution prevails in future launches due to challenging conditions in the UK property market. Similarly, at the group level, the emphasis remains on prioritizing sustainable profits rather than pursuing aggressive top-line expansion.

3. "Duduk," its product line emphasizing lifestyle-oriented offerings in established townships, is set for expansion in FY24. Following the introduction of Sa.Young D’ Eco Botanic in Iskandar Malaysia, EcoWorld Malaysia's Duduk series now spans across the Central, Northern, and Southern regions. Moreover, more Duduk products are scheduled for launch in the upcoming quarters in both the Klang Valley and Iskandar Malaysia.

4. On the industrial products side, specifically Eco Business Parks, sales amounted to RM298.0m in 1QFY24. The group is confident that this positive momentum will continue. With the upcoming launch of Eco Business Park IV in Kulai, Johor, planned for FY25, they are strategically positioned to capitalize on the strong interest expressed by both local and international industrialists.

5. The group has successfully penetrated the high-end market, and now they are strategically expanding their product range and increasing market share to cater to the demands of the Malaysian real estate market. While maintaining their focus on high-end segments, they are also expanding into promising areas. Currently, ECOWLD has four diversified revenue pillars, namely Eco Townships, Eco Business Parks, Eco Rise, and Eco Hubs.

Forecasts. Relatively unchanged post-model updates.

Valuations. Against an unchanged 50% discount to RNAV (vs. an average of 55% for its peers), we raise our TP to RM1.20 (from RM1.00) as we updated our RNAV to account for the group’s new sizeable additions to the group’s pipeline, being Eco Botanic 3 (RM3.88b) and Eco Business Park 6 (RM1.58b) while also updating our unbilled sales inputs given the group’s strong success in pushing its product launches. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We 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 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. Maintain UNDERPERFORM.

Risks to our call include: (i) recovery in the local property market, (ii) easing mortgage rates improving affordability, (iii) lower construction cost, and (iv) better overseas operations.

Source: Kenanga Research - 22 Mar 2024