Re-rating catalysts seen for Ecoworld

Stable sales and dividend yields among factors

“It is conservative in project budgeting and has factored in higher construction costs for its future projects.”

CGS-CIMB Research

PETALING JAYA: Stable sales and attractive dividend yields are key potential re-rating catalysts for property company Eco World Development Group Bhd’s (Ecoworld Malaysia) share price.

In a report to clients, CGS-CIMB Research said the company’s management noted that building material prices have normalised recently from the previous peak levels, and it expects this trend to continue into next year.

Citing a briefing with the company, the research house said that Ecoworld Malaysia is conservative in project budgeting and has factored in higher construction costs for its future projects.

“We gather labour shortages are still an issue, but its projects are mostly on track with no delays,” it said.

The research house added that with an improving balance sheet, the group can pursue strategic land acquisitions if good opportunities arise.

“We gather it is comfortable with a net gearing ratio of 0.4 times to 0.6 times, which could easily buffer for one to two landbank transactions in the future.”

Management said potential land deals are likely to be 200 to 500 acres in size and would prioritise the Klang Valley area,” it added.

CGS-CIMB Research also said management pointed out that the group’s gross margin should be sustainable in the low 20s and eventually aims to increase its gross margin in tandem with a better product mix, skewed towards higher-margin properties.

“Currently, about 60% of its properties sold are priced above RM700,000 per unit, while the remaining 40% are priced below RM700,000 per unit.”

It said its target price for the stock is unchanged at 82 sen.

“We use a five-year mean price-to-book value to reflect its trading range before and post-covid-19 lockdowns following business normalisation.”

The research house is retaining its “add” call on the stock, with a sudden deterioration in property market sentiment a key downside risk.

Meanwhile, Maybank Investment Bank’s research unit, which reiterated its “buy” call, also noted that the property company’s net gearing continued to improve to 0.35 times as at the end of 3Q22, from 0.36 times in the previous quarter.

“We adjust our earnings forecasts by minus 6% to 7%. Our target price is

unchanged at 81 sen,” it said, adding that the stock is backed by a dividend yield of 6%.

In its report, Maybank IB Research also said the company was very likely to exceed its current financial year’s sales goal.

The group has locked-in Rm3.4bil in property sales in 10M22, accounting for 98% of its

financial year 2022 (FY22) sales target of Rm3.5bil, exceeding expectations, said Maybank IB Research.

The central region accounted for 55% of the Rm3.4bil sales, followed by Johor (31%), and Penang (14%).

Maybank IB Research said that as at August 31, 2022, unbilled sales (Malaysia projects) were Rm3.95bil, or 1.2 times its estimated FY23 revenue.