Introduction

Eco World Development Group (ECW MK) has been a prominent name in the Malaysian property development sector, with a strong presence in key regions such as Klang Valley, Iskandar Malaysia, and Penang. The company has been navigating strategic expansions, leveraging its strengths in integrated developments, and building recurring income streams. This article dives deep into the company’s recent performance, strategic initiatives, and future outlook as highlighted in the latest report by UOB Kay Hian.

Investment Recommendation

The report maintains a BUY recommendation for Eco World Development, with a target price of RM2.37, representing a potential upside of 24.7% from its current share price of RM1.90. This valuation is based on a 35% discount to its Revalued Net Asset Value (RNAV) of RM3.66 per share, supported by strong fundamentals, strategic land acquisitions, and a growing recurring income portfolio.

Strategic Initiatives and Key Developments

Raising the Bar with BBCC Integrated Development

The Bukit Bintang City Centre (BBCC) project stands as a testament to Eco World’s commitment to revitalizing commercial vibrancy. Key features include:

• Tuah 1895: A premium dining and lifestyle hub aiming to boost footfall and value appreciation.
• Mitsui Lalaport Mall: ECW owns a 10% stake, with retail concepts expected to enhance visitor numbers.
• Menara EcoWorld: Higher rental and occupancy rates are anticipated.
• Planned International Hotel: A four-star hotel by UDA Holdings, with its management agreement in final stages.

These initiatives, coupled with strong weekend bookings for the Andaman Grand Ballroom, are expected to drive long-term value for the BBCC project.

QUANTUM Edge Land Deals

The QUANTUM Edge industrial park is nearing sell-out, with remaining net landbank of 132 acres. The company’s flexible approach to land sales, including build-to-suit and build-to-lease models, has been instrumental in closing significant deals, such as:

• Land sales to Microsoft (123 acres) and Princeton (57 acres), with proceeds to be recognized over FY25-26.

These deals are expected to contribute 8% of FY25-26 revenue, reflecting strong industrial demand.

Financial Performance and Projections

Eco World Development has demonstrated robust financial performance, with key metrics for FY24-27 highlighted below:

Revenue and Profit Growth

• Revenue: Projected to grow from RM2,258m in FY24 to RM3,104m in FY27.
• Net Profit: Adjusted net profit is expected to increase from RM354m in FY24 to RM434m in FY27.
• EBITDA Margin: Consistently above 21%, reflecting operational efficiency.

Key Financial Metrics

• PE Ratio: Expected to improve from 15.8x in FY24 to 13.7x in FY27.
• Dividend Yield: Steady at approximately 3.3% annually.
• Net Debt to Equity: Forecasted to rise to 0.28x by FY25, driven by strategic land acquisitions.

Recurring Income Growth

Rental income from Eco Hubs surged by 36% YoY to RM11m in FY24. Upcoming projects, including Majestic Labs and the 108-strata office units in Menara EcoWorld, are expected to drive over 50% growth in this segment for FY25.

Landbanking Strategy

Eco World has strategically expanded its landbank, focusing on high-growth regions and diverse market segments. Key acquisitions include:

• Semenyih Land: 847 acres targeting the mass market, with a GDV of RM4.6b.
• Eco Botanic 3: 240 acres for township development, catering to first-time homebuyers and the M40 group.
• Kuala Langat Land: 8.9 acres for high-rise and commercial projects.

These acquisitions aim to enhance the company’s portfolio, with a net gearing ratio expected to stabilize at 0.28x by FY25.

Valuation and Recommendation

The target price of RM2.37 is deemed fair, considering a 16.8% YoY growth in FY25 EPS. Eco World’s strong balance sheet, faster project turnover, and meaningful landbank exposure in Johor position it for sustained profitability. The company’s focus on building steady recurring income streams further supports future asset monetization.

Environmental, Social, and Governance (ESG) Highlights

• Environmental: Reduced greenhouse gas emissions by 36% in FY22.
• Social: 100% of building material suppliers and main contractors are local.
• Governance: Strong transparency and adherence to Anti-Bribery and Anti-Corruption policies.