Date of Report
October 2, 2024
Broker
Maybank Investment Bank Berhad
Overview of Eco World Development
Eco World Development (ECW MK) is primarily involved in property development, with its projects spread across Malaysia, including the Klang Valley, Penang, and Johor. The company has a vast remaining landbank of 3,426 acres with a gross development value (GDV) of MYR52 billion. The company’s ongoing development projects expose it to Environmental, Social, and Governance (ESG) risks, but it has taken steps to mitigate these risks.
Key Financial Metrics (FY22A – FY26E)
- Revenue: Expected to grow from MYR2.8 billion in FY24E to MYR3.3 billion in FY25E, but it is forecasted to decrease slightly in FY26E.
- Core Net Profit: Estimated to increase significantly by 46.4% in FY25E to MYR415.8 million but is forecasted to decline by 7.1% in FY26E.
- Core EPS Growth: Expected to grow by 46.4% in FY25E.
- Net Dividend Yield: Estimated at 3.8% from FY24E to FY26E.
- ROAE: Projected to increase from 5.9% in FY24E to 8.4% in FY25E.
Quantum Edge Business Park Development
ECW is developing the Quantum Edge Business Park (QEBP) in Kulai, Johor. This industrial park spans 404 acres and targets digital and high-tech industries, including AI, cloud computing, manufacturing, and R&D.
The park’s strategic location, just 6 minutes from the Kulai toll and 25 minutes from the Sedenak toll, makes it highly attractive for data center operators. The availability of TNB pylons on the site adds to its appeal for companies requiring substantial power supplies, such as Microsoft and Princeton Digital Group (PDG), which have already secured land deals.
- Current Progress: As of September 2024, 40% of earthworks have been completed. Infrastructure works are expected to commence by the end of 2024.
- Key Deals: Microsoft acquired 123 acres of land for MYR402.3 million, and PDG secured 57 acres for MYR224 million.
- Contribution to Earnings: QEBP is expected to begin contributing to earnings in FY25E, accounting for 28% of ECW’s pretax profit.
Future Land Sales and Expansion Plans
Eco World Development is actively negotiating with data center (DC) operators and could secure additional land sales by the end of 2024 or 2025. The company is also looking to expand its landbank in the Klang Valley and Iskandar Malaysia for further township and industrial development under its QUANTUM products.
Environmental, Social, and Governance (ESG) Focus
- Environmental: ECW aims to incorporate green practices into its developments. In FY23, 89% of its projects received green certification. The company also strives to allocate 15% of its development area to green spaces, surpassing the target with 22% in FY23.
- Social: ECW emphasizes employee diversity, with 45% of its workforce being female in FY23. The company recorded an average of 26 training hours per staff in FY23.
- Governance: ECW has a well-structured Board, with 36% female representation and adherence to the Malaysian Anti-Corruption Commission Act. The company had zero corruption or bribery incidents in FY23.
Risk Factors
Several risks could affect ECW’s future earnings, including:
- Prolonged slowdown in the property sector.
- Higher-than-expected losses from its 29% stake in Eco World International (ECWI).
- Weaker-than-expected operating margins due to higher marketing and construction material costs.
- Regulatory and policy changes that may impact the property development sector.
Financial Position and Market Performance
- Share Price: MYR1.82 as of the report date.
- Target Price: Unchanged at MYR1.96, representing an 8% upside.
- Major Shareholders: Syabas Tropikal Sdn. Bhd. holds a 32.9% stake, while Eco World Development Holdings owns 9.4%.
- Market Capitalization: MYR5.4 billion or USD1.3 billion.
ESG Ratings and Initiatives
- Overall ESG Score: ECW scores 69/100 in the Maybank proprietary ESG scoring methodology, reflecting its strong commitment to environmental and social responsibility. The company is also a constituent of the FTSE4Good Bursa Malaysia Index since 2020.
