• MYR1.88 FV based on a 35% discount to RNAV. With 3,640 acres of landbank spread across key hotspots in Malaysia, Eco World is wellpositioned to pursue the next growth phase due to the increasing maturity of its current township developments. We believe the recent land acquisitions will be the key driver. Recently, the company announced two land deals in the high-growth Iskandar Malaysia region. Dividend payment from Eco World International (ECWI MK, NR) should also come in handy for more landbanking activities this year.

• Prime beneficiary for broad-based sector re-rating. Eco World should benefit from any uptick in demand in any of the major markets. Currently, the company has 1,800 acres in the Klang Valley (50%), 1,600 acres in Johor (44%) and 214 acres in Penang (6%), with products ranging the evergreen residential township homes, its high-rise duduk series, commercial, as well as the increasingly popular industrial properties. In FY23 (Oct), Eco World raked in MYR3.6bn worth of property sales, of which MYR1.04bn was from all the business park projects.

• Better cash flow as township lifecycle entering matured stage. Most of Eco World’s township projects are entering their 8-10-year lifecycle. Therefore, cash flow and profit margin from these developments are expected to be more consistent and lucrative going forward. Net margin in FY23 improved to 8.5% from 7.7% in FY22. As such, the maturing phase should enable management to pursue the next phase of growth.

• Aggressive landbanking in Johor indicates management’s strong confidence in Iskandar Malaysia. Over the last five months, Eco World has successfully added 644 acres of land in Johor, including 404 acres in Kulai and 240 acres in Iskandar Puteri near the Second Link. Both parcels of land are expected to boost the total remaining GDV by 11% (+MYR5.46bn) to MYR56bn. Note, with only three township and three business park projects, the Johor region contributed MYR1.59bn in Eco World’s property sales, representing 44% of the total in FY23.

• Solid financial position for more landbanking opportunities. ECWI announced its proposed capital reduction exercise in Apr 2023. A total of MYR253m cash distributed back (via dividend) is now Eco World’s important war chest to acquire more landbank. In addition to the various cost-cutting initiatives over the last few years, Eco World’s net gearing has improved to 0.25x in FY23 from 0.62x in FY20.

• Valuation. Our FV is based on 35% discount to RNAV. The slight premium compared to our valuation for other developers under our coverage reflects the company’s strong execution track record, better growth prospects ahead as well as the potential upside in dividend given the cash returns from ECWI. 

Source: RHB Securities Research - 23 Jan 2024