ECOWLD’s FY22 core earnings met our forecast but beat market expectation. Its full-year sales of RM3.84b met our assumption but surpassed its own internal target. Going forward, we believe ECOWLD’s strong branding, matured townships and nimble cost structure will enable it to continue to fetch healthy sales and margins despite rising industry headwinds. We maintain our FY23F earnings and introduce FY24F numbers. We keep our TP of RM0.83 and OUTPERFORM call.
Met our expectation but above market’s. FY22 core net profit of RM238m (after stripping out RM81m impairments on its 27%-owned EWINT) met our forecast but beat market expectation by 13%. Meanwhile, the group declared a 2.0 sen dividend bringing YTD dividends to 5.0 sen, also in line with our expectation.
Highlights. FY22 core net profit eased by 1% dragged down by losses in its 27%-owned joint venture EWINT (versus a profit a year ago) which more than offset the stronger gross profit margin from its Malaysian operation and reduced financing costs on lowered borrowings.
Record sales. ECOWLD’s full-year sales of RM3.84b were within our assumption of RM3.9b (which we revised up three months ago) but surpassed its own internal target of RM3.5b. It is worth noting that the sales from its industrial segment surged >2.5x YoY and more than tripled vs. FY20. As at end Oct 2022, ECOWLD’s effective unbilled sales stood healthily at RM3.6b (vs. RM4.2b three months ago).
The key takeaways from its post-results briefing are as follows:
1. ECOWLD revealed a FY23 sales target of RM3.5b (in-line with our assumption) to be driven by high-margin products comprising: (i) residential properties priced >RM650k, and (ii) industrial products. It indicated that there is currently a strong demand for its industrial properties especially from buyers from China.
2. It is scouting for land for township development within the Klang Valley. The ideal size with be 150 to 250 acres with immediate development potential that can last for 8-10 years. Its healthy balance sheet with a net gearing of 0.31x as at end-Oct 2022 could easily accommodate such acquisitions.
3. ECOWLD does not expect margins to trend down despite the rising headwinds from higher interest rates and elevated input costs thanks to its tight cost controls through digitalisation, standardising materials usage to obtain bulk discounts, and its matured townships of which lumpy infrastructure costs were frontloaded years ago.
4. It is not too concerned over the labour issue in the industry because it can entice the best contractors in town by virtue of it being a good paymaster anchored by strong sales and cash flows.
5. Its 27%-owned joint venture EWINT will focus on monetising its RM1.4b worth of remaining completed inventories in FY23 and distribute RM900m dividend to its shareholders (ECOWLD’s effective share would be RM243m). While sales in the UK and Australia have been good upon the reopening of borders, the cost pressures especially from construction are even greater – leading towards cautious launch plans ahead. Currently, EWINT has 2 ongoing developments and 6 under planning stages with a remaining GDV of c.RM9b.
6. In the years ahead, ECOWLD aims to improve or at least maintain its FY22 dividend payout of 5.0 sen.
Forecasts. We maintain our FY23F earnings and introduce our FY24F earnings or RM247m backed by sales of RM3.5b. We continue to like ECOWLD for its ability to manoeuvre current headwinds and defend margins given its strong branding and nimble cost structure. Consequently, this translates to strong cash flow generation and allows for consistent dividends. We keep our TP of RM0.83 based on 60% discount to RNAV – in line with peers’ discount range of 60-65%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5). Maintain OUTPERFORM.
Risks to our call include: (i) a prolonged downturn in the local property market, (ii) rising mortgage rates hurting affordability, (iii) rising construction cost, and (iv) risks associated with overseas op
Source: Kenanga Research - 19 Dec 2022
