Looking for new land purchases
- EWDG targets to sustain and grow its gross margin through a better product mix in the future, i.e. skewed towards higher-margin properties.
- The group is also looking at landbanking opportunities, prioritising the Klang Valley area with faster turnover.
- Reiterate Add given the decent dividend yields, strong property sales momentum and improving balance sheet.
Aims to sustain and grow its gross margin
? We hosted Eco World Development’s (EWDG) 9MFY10/22 post-results virtual briefing today. Management guided that the group’s gross margin should be sustainable in low twenties, 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 were priced above RM700,000 per unit, while the remaining 40% were priced below RM700,000 per unit.
? EWDG declared a 1 sen second interim DPS, bring its 9MFY22 DPS to 3 sen vs. 2 sen in 9MFY21. We gather the management will strive to dish out better dividends and we expect the group to, at the very least, maintain its FY22F DPS at 4 sen, which is similar to FY21’s. EWDG is unlikely to formulate an official dividend policy in the next 1-2 years given the macro headwinds and uncertainties in the property market.
Looking for new landbanks
? Management said that the building material prices have normalised recently from the previous peak levels, and it expects this trend to continue into next year. EWDG is conservative in project budgeting and has factored in higher construction costs for its future projects. We gather labour shortage is still an issue, but its projects are mostly on track with no delays.
? Given the improving balance sheet (net gearing from c.0.8x in FY18 to 9M22’s c.0.4x), the group could pursue strategic land acquisitions if good opportunities arise. We gather it is comfortable with a net gearing ratio of 0.4x-0.6x, which could easily buffer for 1-2 landbank transactions in future. Management said potential new land deals are likely to be 200-500 acres in size and it will prioritise the Klang Valley area.
? Our TP is unchanged at RM0.82, still based on FY24F P/BV of 0.45x (-0.5 s.d. from its 5-year mean P/BV). We use a 5-year mean P/BV to reflect its trading range pre- and post-Covid-19 lockdowns following business normalisation. Retain Add, given the strong sales momentum and improving balance sheet. The stock is also supported by decent FY22-24F dividend yields of over 5%. Steady new property sales momentum and attractive dividend yields are key potential re-rating catalysts for its share price. A sudden deterioration in property market sentiment is a key downside risk to our call.