ECOWLD’s 9MFY24 results met expectations. Its 9MFY24 core net profit grew 18% YoY on better property sales and the turnaround of 27%-owned EWINT (Not Rated). It has surpassed its FY24 sales target of RM3.5b, already achieved in 9MFY24, albeit with no revision to the group’s full-year expectations. We keep our forecasts and TP of RM1.41. Maintain UNDERPERFORM.

ECOWLD’s 9MFY24 core net profit of RM220.1m met expectations, coming in at 77% and 79% of our full-year forecast and the full-year consensus estimate, respectively.

YoY, its 9MFY24 revenue increased by 17% due to higher contributions from active and newly launched phases. Its core net profit grew slightly higher at 18% due to higher gross margin (27.2%, +0.9 ppts) following lower costs incurred during the tail-end of completed and near completion projects.

QoQ, its 3QFY24 revenue declined by 5% from comparably fewer progress completion. However, its core net profit rose by 15% from higher gross margins (31.3%, +4.8 ppts) and contributions from joint ventures.

The key highlights from its analyst briefing are as follows:

1. It is keeping its FY24 sales target of RM3.5b, despite having already surpassed that during 9MY24. We believe it may close the year with RM4.5b sales arising from further reception across all fronts, supplemented by its new high-tech industrial pillar, QUANTUM. Given the strong sales in 9MY24, ECOWLD will focus on maximising margins in 4QFY24.

2. For residential, Eco South recorded RM2.2b in sales, and Eco Central came in second with RM931.0m sales recorded from existing phases and new launches. On Eco Rise, is it the fastest growing revenue pillar, with 1,800 units of “Duduk” apartments sold making up 85% of Eco Rise YTD sales. ECOWLD’s affordable "Duduk" series priced at below RM500k is now available across the Central, Northern, and Southern regions.

3. For industrial, it registered RM1.1b sales in 9MFY24, with RM626.0m from QUANTUM and RM423.0m from Eco Business Parks. It is riding on the strong demand for industrial products and is on track to launch 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.

4. The group is on the lookout for new landbanks, mainly in Klang Valley and Iskandar Malaysia, backed by a strong war chest with a net gearing of 0.31x.

Forecasts. Maintained.

Valuations. We maintain our TP of RM1.41 ascribing a 50% discount to RNAV (vs. 55% of industry average) to account for the group’s new sizeable additions to the group’s pipeline, and 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. 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 - 23 Sep 2024