ECOWLD hopes to take its industrial products to a higher level by rebranding some of them Quantum, starting with products in Eco Business Park VI in Kulai, Iskandar Malaysia, backed by anchor buyer Microsoft. We believe ECOWLD is capitalising on the presence of Microsoft. We maintain our forecasts, TP of RM1.41 and UNDERPERFORM call.

ECOWLD has announced a new revenue pillar called Quantum, targeting industrial players within the digital and high-tech ecosystem space, not limited to data centres.

Recall, industrial products under its Eco Business Park brand are a high-growth segment in ECOWLD with sales at a CAGR of 68% between FY20 and FY23. Its various Eco Business Park phases currently house over 1,400 SMEs.

ECOWLD hopes to take its industrial products to a higher level by rebranding some of them Quantum, starting with products in Eco Business Park VI in Kulai, Iskandar Malaysia, backed by anchor buyer Microsoft. We believe it is likely to replicate its well-received offerings of detached, semi-detached, and cluster factories with versatile 4-in-1 designs that could serve as showrooms, offices, warehouses, and production facilities.

We are mildly positive on ECOWLD’s latest initiative, which we believe could potentially accelerate the development of Eco Business Park VI in Kulai, Iskandar Malaysia, as well as generate higher sales and hence margins. While we believe Microsoft’s data centre does not come with a high-value supply chain (and hence, we do not see its suppliers scrambling to set up shops around the data centre), the presence of Microsoft alone will add prestige to Eco Business Park VI.

Forecasts. Maintained as we do not expect meaningful earnings impact from ECOWLD’s latest initiative during our forecast period.

Valuations. We maintain our TP of RM1.41 (based on an unchanged 50% discount to its RNAV (vs. an average of 55% for its peers), having brought forward profit recognition for some of its projects. 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. However, its valuations have become fair after the recent run-up in its share price. Maintain UNDERPERFORM.

Risks to our call include: (i) a stronger-than-expected recovery in the local property market, (ii) easing mortgage rates improving affordability, (iii) lower construction cost, and (iv) improved contributions from overseas operations.

Source: Kenanga Research - 5 Aug 2024