EcoWorld’s nine-month results met expectations while sales surprised to the upside thanks to the disposal of a hotel at Bukit Bintang City Centre for RM295m. Kenanga likes the stock for its strong branding and nimble cost structure, enabling it to continue to fetch healthy sales and margins despite the still challenging industry landscape. As such the investment house maintains its full-year earnings and raises 2023 by 3%.
The results basically came in at only 66% and 71% of the full-year forecast and the full-year consensus estimate, however, Kenanga considers the results within expectation as it expects a stronger fourth quarter from the acceleration of in-progress billings as labour shortage eases, and moderating losses from 27%- owned EWINT JV. Sales also outperformed with RM3.44b beating the RM3.3b target and the company’s internal RM3.5b target. The positive deviation stemmed from the sale of a hotel at BBCC for RM295m to UDA Holdings. Consequent to the outperformance, the FY22F sales assumption is raised to RM3.9b. As of Aug 2022, ECOWLD’s effective unbilled sales stood healthily at RM4.2b.
With an improving balance sheet and well-managed cash flows, EcoWorld is on the lookout to acquire new land banks to replenish their total remaining GDV of c.RM57b. Margins-wise, the company aims to maintain >20% GP margins despite the challenging headwinds ahead, i.e. rising interest rates coupled with higher raw material costs.
Meanwhile, the developer guides that the ongoing labour shortages are manageable and that work at sites has been progressing as planned. Kenanga maintains a outperform call on the stock with a target share price unchanged at RM0.83 based on a 60% discount to RNAV – in line with peers’ discount range of 60- 65%. The company is liked for its ability to manoeuvre current headwinds and defend margins given its strong branding and nimble cost structure.
