Eco World International Bhd ("EWINT")

Overview

1. EWINT is an overseas property arm of Eco World Development Group Bhd, with projects in UK and Australia. It was listed back in April 2017 at RM1.20 per share, attracted many cornerstone investors including Guocoland (27%), PNB, KWAP and EPF. Ecoworld Development Group Berhad holds 27% equity interest in EWINT;
2. It started its property development venture in the UK via its 75%-owned subsidiary, Ecoworld Ballymore with properties located at London Zones 1 and 2 ⁽ⁱ⁾ with units priced between £800 psf to £1,500 psf. Since then, it had launched 3 projects with GDP of £2.2 bil;
3. Subsequently, it ventured into Build-to-Rent ("BtR") and Open Market Sales ("OMS") in Greater London and South East of London (i.e. Zone 2 to 4 of London) via its 70%-owned subsidiary, Ecoworld London with units priced below £800 psf after it acquired 70% of Wilmott Dixon residential business;
4. As for Australia, it had started to handover its maiden project West Village, Paramatta by June 2020 and expects to deliver Yarra One, Melbourne by end of 2020. Whereas, Macquarie Park is expected to launch in FY22;
5. The accounting standards adopted by the UK and Australia required the revenue and profits to only be recognised after the properties are handed over to buyers. From FY18 to FY19, the Company has delivered a total of 405 units and 736 units respectively with 800 units due by FY20. These would convert into revenue and profit for the current financial year, thereby reducing debt and bringing considerable cash flow;
6. Sales by business unit are as follow:-

                Sales target for FY20 is RM2.2 billion.

7. Projects to be delivered in each of the FY are as follows:-

Note:-

1. The zoning refers to the way the public transport companies have divided up London for tube and bus fare purposes. Zone 1 being the whole of central London while Zone 2 the neighbourhoods surrounding central London. Zone 3 the next region out, all the way out to Zone 6 in a series of onion rings. Please refer to https://debut.careers/insight/getting-around-london/ for more information on the zoning.

8. Ewint 70% owned subsidiary, Ecoworld London is currently Brentfold FC’s main sponsor and involved in the development of Brentford Community Stadium. Currently, Brentford FC races to seal automatic promotion to the prestigious English Premier League with 2 matches remaining at the time of writing.

Build-to-Rent Scheme

1. Presently, each of the leading BtR management company in London has less than 5,000 homes under management. EWINT aims to become the leading BtR management company in London with 10,000 units in its pipeline;
2. With BtR scheme, it offers the advantages of affordability (i.e. sans security deposit, quality homes without ownership), flexibility (i.e. easy access to different cities, tenure of rental), convenience (i.e. site-based management, customer service 7 days a week), customisation (design and built based upon different demographics, lifestyles and age groups) and security (worry not of being kicked-out after tenancy ends);
3. Contribution from BtR will not be high as it is still in its infancy. It would somehow contribute significantly from FY21 onwards. BtR will be the main driver for medium and long term growth of the Company, as well as generating stable recurring income and cash flow ; and
4. EWINT inked a £389 million (RM2.1 billion) deal with Invesco in December 2018 to build approximately 1,000 units BtR in the UK and expects to secure another BtR deal with institutional investors by the end of 2020.

Financial Highlights

1. Cash flow

2. Income Statement

Risks        

1. Earnings visibility post 2021

Analysts report from CIMB Investment has highlighted their concerns on EWINT earnings visibility post 2021. However, these worries deem unduly and is a “Myopia” mindset as EWINT (with its visionary founder Tan Sri Liew Kee Sin) remains committed to deliver 10,000 quality homes in UK the next five (5) years, either via OMS or BtR schemes, notwithstanding their Australia market is starting to gain traction with the commencement West Village hand over in June 2020 and Yarra One by end of 2020.  It aims to become a prominent property developer and a leading BtR manager in the UK.

2. Construction slowdown

COVID-19 is having far reaching impacts on the construction industry globally with the UK and Australia are not spared from this unprecedented pandemic leading to substantial reduced of activity levels, with two to three months of slowdown in construction progress. However, this does not affect its collective revenue and profits recognition for FY20 and FY21.

Catalysts

1. Targeting to close another BtR deal with increased interest of institutional investors and improvement in OMS for FY20;
2. Stamp duty holiday; sliding case of 2-12% raised from £125 k to £500 k;
3. The UK government promised 3 million Hongkongers new visa and pathway to citizenship after China enforced new security law. This factor drives them to flock into buying UK properties;
4. With low interest rates environment across economically advanced countries which reduced return expectation of real estate assets, interest in BtR has increased among institutional investors. This bode well for expansion in BtR market;
5. Low supply of new homes especially in the UK. EWINT has 11 active projects under their radar and looking to expand its BtR segment; and
6. Expected to pay dividends by FY20. As of the end of Apr 2020, amount owing by joint ventures add up to RM2.2 bil, which will be translated into considerable cash for dividend payments.

Conclusion

EWINT is the only pure play overseas property developer in Malaysia. I would suggest diversifying into overseas properties rather than just investing in local property developers like the likes of SP Setia, Mah Sing, Sunway and others with projects purely focusing in Malaysia. The rationale lies in Malaysia remains saddled with massive property glut for the last four (4) years, despite various initiatives by the government (i.e. stamp duty waiver for S&P up to May 2021, RPGT exemption limited to 3 units of residential properties up to December 2021 and removal of 70% financing cap for third property) and lowest recorded OPR of 1.75% since 2004. With the current economic conditions, unemployment rate of between 6 to 8%, pay cuts, lay-offs, furlough and reduced appetite of banks to take additional risks, it would take years before the country could clear this glut. On the contrary, the UK faces shortage of homes for ownership as well as rental due to increase in population size. With Hongkongers throng to purchasing properties in the UK after China newly enforced security law, EWINT has numerous catalysts to ride on.

At the current price of RM0.43, EWINT is trading at 5.5 times price earnings ratio, 64% discount to the IPO price, 38% of the net assets and supported with 80% of potential cash backing (RM0.34 per share) to be received after deducting borrowings. With all relative valuation methods, it appears that EWINT is currently undervalued for its prospects and future growth trajectory on top of the commendable progress made over the past two (2) fiscal years.