- Record FY2024 Performance: EcoWorld ended FY2024 with a record-high core net profit of RM354 million and record annual sales of RM4.07 billion.
- Achievable FY2025 Sales Target: Management has set a sales target of RM3.5 billion for FY2025, with ongoing land acquisitions expected to boost future sales growth.
- Building Recurring Income: The group is building a portfolio of commercial and industrial assets to generate recurring income.
As we enter 2025, Malaysia’s property market is poised for significant growth, driven by robust economic fundamentals, major infrastructure projects, and positive buyer sentiment. Key developments such as the Johor-Singapore Special Economic Zone (JS-SEZ), the East Coast Rail Line, and the Rapid Transit System (RTS) Link are expected to create property hotspots and attract strong investor interest.
Amid this optimistic backdrop, Eco World Development Group Bhd (KLSE:8206), commonly known as EcoWorld, emerges as a standout stock to watch, thanks to its strategic landbank within the JS-SEZ and impressive earnings growth.
The property development company has close to 9,000 acres of landbank in Malaysia: Klang Valley, Iskandar Malaysia, and Penang, with a total gross development value (GDV) exceeding RM80 billion. EcoWorld is involved in developing new townships, integrated commercial developments, high-rise apartments, and green business parks. The company also has international projects in London, Sydney, and Melbourne.
FY2024 Performance
- Record Earnings: EcoWorld ended FY2024 with a core net profit of RM354 million, a 30% year-on-year (YoY) increase, exceeding expectations by 19% and 21% compared to our forecast and Bloomberg consensus, respectively.
- Sales Achievement: FY2024 sales reached RM4.07 billion, up 13% YoY, setting a new annual sales record and surpassing the company’s target of RM3.5 billion.
- High Profit Margins: EcoWorld’s outperformance in FY2024 stemmed from higher-than-expected profit margins, driven by a favorable sales mix and cost savings from some ongoing projects.
FY2025 Outlook
- Sales Target: Management set a sales target of RM3.5 billion for FY2025, which we considered achievable.
- Gross Profit Margins: Management expects gross profit margins to be sustained at 26% to 28% in FY2025, supported by cost savings and economies of scale. Gross profit margin was at 27% in FY2024.
- Land Sales: Management stated that the RM402.3 million sale of land within EcoWorld’s Quantum Edge business park is expected to contribute to FY2025.
- Land Acquisitions: Completion of ongoing land acquisitions, including in Iskandar Puteri for Eco Botanic and in Kuala Langsat for high-rise apartments and commercial units, is expected to boost future sales and contribute to incremental revalued net asset value (RNAV). These acquisitions will add 2,263 acres to EcoWorld’s landbank, bringing in an incremental GDV of RM11.9 billion.
EcoWorld’s Ongoing Land Acquisitions
Sources: CGSI Research, Company Reports
- Recurring Income: The group is building a portfolio of investment assets for recurring income. The portfolio will comprise commercial and industrial assets, which enhance the value proposition of its nearby townships.
Risks to Watch
- Project Delays: Delays in project launches could impact the company’s performance. For instance, any construction setbacks or unforeseen circumstances like adverse weather conditions can push back project timelines. This can lead to increased costs and missed revenue targets, affecting overall profitability.
- Sales Growth: A decline in sales growth could pose a risk. If the market demand for properties slows down due to economic downturns, changes in buyer preferences, or increased competition, EcoWorld may struggle to meet its sales targets.
Conclusion
We like EcoWorld for its robust earnings outlook, potential monetisation of landbank, and compelling dividend yields of 3.5% to 3.8% for FY2025 to FY2027. With an “add” recommendation and a target price of RM2.44, EcoWorld presents a compelling investment opportunity, albeit with a reminder for investors to monitor risks.
References
CGSI Note | Eco World Development | Jan 13, 2025
CGSI Note | Eco World Development | Dec 12, 2024
Disclaimer: ProsperUs Manager of Content, Hailey Chung, does not own shares of the company.
