MIDF in its recent meeting with Eco World Development Group felt optimistic about the company’s near-term prospects, key takeaways were sales momentum remains strong including for new properties in 3QFY22 following decent new sales in 2QFY22.
The group recorded new property sales of RM2.17b in the first seven months of FY22, making up 62% of management’s new sales target of RM3.5b for FY22. New property sales were encouraging following the reopening of economic activities and international borders. Besides, Ecoworld sees minimal impact from the OPR hike on buying sentiment as the interest rate is still low. In short, management sees a low risk of an OPR hike to derail sales recovery and maintain the new sales target at RM3.5b for FY22.
Separately, the balance sheet of the developer is improving as the net gearing declined to 0.36x in 2QFY22 from 0.77x in FY16. The improving balance sheet was attributed to the repayment of its borrowings from cash flow generated from its ongoing projects. Meanwhile, the improving balance sheet makes ECOWLD well-positioned acquire landbank. MIDF gathers that the group is still on the lookout for land particularly in Klang Valley as the low net gearing gives ample room to gear up if there is attractive land banking opportunity arises.
As for rising building materials costs such as steel bars and cement, the construction cost is expected to increase in the near term. The rising cost of construction is expected to compress the margin slightly in the near term. Nevertheless, the impact is expected to be mild as the infrastructure cost of most of its township has already been incurred while it will pass on the rising cost partly to property buyers by raising property selling prices.
Meanwhile, there is no issue in meeting the construction timeline despite the lingering labour shortage issue as the infrastructure of most of its township projects is built. In this respect, MIDF maintains BUY with an unchanged TP of RM0.80. Post meeting, there were no changes to the earnings forecast for FY22/23F. Estimated dividend yield is also attractive at 6%
