Kenangs says EcoWorld’s 1HFY24 results met expectations as its net profit grew 17% YoY on better property sales and the turnaround of 27%-owned EWINT (Not Rated). The house notes that the group is on track to meet its FY24 sales target of RM3.5b with RM2.2b achieved in 1HFY24. Kenanga is keeping its forecasts but raises its TP by 3% to RM1.41 (from RM1.37).
Maintain UNDERPERFORM.
EcoWorld’s core net profit grew slightly slower at 17% due to a softer gross margin (from a high base a year ago due to bumper profit recognition from a large number of completed units) and higher tax, partially cushioned by higher interest income and the turnaround in EWINT (on favourable forex movements). QoQ, both its 2QFY24 revenue and net profit were flattish.’The key highlights from its analyst briefing are as follows:
It is keeping its FY24 sales target of RM3.5b, despite having already achieved RM2.2b during 1HFY24. Given the buffer from
strong sales in 1HFY24, ECOWLD will focus on maximising
margins in 2HFY24.
Similarly, 27%-owned EWINT reported strong sales of RM518.0m in 1HFY24, on track to meet its full-year target of RM850.0m. However, EWINT remains cautious on putting new launches onto the market given the still soft property market in the UK at present.
With the launch of Sa.Young 2 at Eco Botanic 2 in Iskandar Malaysia, ECOWLD’s affordable “Duduk” series priced at below
RM500k is now available across the Central, Northern, and Southern regions. Since 2020, they have launched seven Duduk
projects, with two more to be rolled out in 2HFY24 in Eco Majestic and Kajang.
It registered RM420m sales of industrial products in 1HFY24, specifically from Eco Business Parks. It is riding on the strong
demand for industrial products by launching Eco Business Park VI in Kulai, Johor, in FY25. Its recent land sale to Microsoft could open the door for more buyers, both local and international, as Microsoft’s presence could help catalyse business activities in the surrounding areas. It is on the lookout for new landbank, mainly in Klang Valley and Iskandar Malaysia, backed by a strong war chest with a net gearing of 0.24x.
Forecasts. Maintained.
Valuations. Against an unchanged 50% discount to RNAV (vs. an average of 55% for its peers), the house raised its TP by 3% to RM1.41 (from RM1.37) as it updates its RNAV to account for the group’s new sizeable additions to the group’s pipeline, and updating unbilled sales inputs given the group’s strong success in pushing its product launches.
Investment case. Kenanga likes 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 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.
