Is Eco World Development Group Bhd Worth Investing In?

Eco World Development Group Bhd (EcoWorld) is a premier property developer in Malaysia with 20 projects worth RM 87.5 billion in Gross Development Value. In addition, it had extended its EcoWorld brand to the United Kingdom and also Australia via its 27% stake in Eco World International Bhd where it has a total of 18 projects worth RM 27 billion in Gross Development Value. 

In this article, I’ll cover on its financial results, future developments, and as well as its valuation ratios. Here are 11 major things to know about EcoWorld before  you invest.

  • Revenue
    EcoWorld has recorded RM 2.17 billion in revenue for the financial year (FY) 2018, a decline from RM 2.94 billion in FY 2017. This is because the management had slowed down its property launches. In fact, EcoWorld has not launched any new projects in FY 2018 and had instead chose to complete its existing projects-in-hand throughout the year.

Source: EcoWorld’s Annual Reports

  • Profitability
    Despite a fall in revenue, EcoWorld has recorded a core earnings of RM 166 million in FY 2018, 47% higher than RM 113 million in FY 2017. It is due to a turnaround in profits from Eco World International Bhd for the two quarters in Q3 & Q4 2018, which is an improvement from incurring a string of losses in quarters before Q3 2018.

Source: EcoWorld’s Annual Reports

  • Balance Sheet Strength
    As of 31 July 2019, EcoWorld had reported to have as much as RM 3.65 billion in total group borrowings and debt securities and a cash balance of RM 174.1 million. Thus, its net debt is RM 3.47 billion. It has as much as RM 4.42 billion in total equity. As such, its gearing ratio is 78.8%.
  • Future Prospect 1: Future Revenue Recognition
    As of 31 July 2019, EcoWorld has secured RM 17.68 billion in total sales which includes joint venture (JV) projects undertaken by its 27% owned Eco World International Bhd. Out of which, EcoWorld has recognised as much as RM 11.82 billion in revenues in its financial records. As such, it leaves behind a sum of RM 5.86 billion in revenues to be recognised for the immediate future. The top 5 projects are as follows:

Source: EcoWorld’s Q3 2019 Results Presentation

  • Future Prospect 2: Remaining Land Bank in Malaysia
    Out of its RM 87.5 billion in total Gross Development Value, EcoWorld’s remaining land bank in Malaysia is worth RM 69.3 billion in Q3 2019. In present times, its 5 largest projects with the most amount of remaining Gross Development Value are as follows: 

Source: EcoWorld’s Q3 2019 Results Presentation

  • Future Prospect 3: Sales Targets FY 2019 & FY 2020
    EcoWorld has set a combined sales target of RM 12 billion in FY 2019 & FY 2020, where EcoWorld Malaysia will contribute RM 6 billion while its remaining RM 6 billion will be from Eco World International Bhd.

  • Future Prospect 4: Joint Venture with PowerChina Group
    As of 14 June 2019, EcoWorld inked two deals with PowerChina Group, a state-owned construction-based conglomerate in China. They include the following:

    Deal 1:
    They will jointly develop Eco Business Park V (Phase 2) in Puncak Alam, a 117.35-acre business park development located next to Eco Granduer which is the largest township development of EcoWorld. This project is estimated to worth RM 850 million in Gross Development Value where EcoWorld’s effective interest in this development is 24%.

    Deal 2:
    It involves a Memorandum of Understanding (MoU) inked by EcoWorld with PowerChina Group to jointly bid for local infrastructure projects in Malaysia.

  • Major Shareholders
    On 17 January 2019, the 5 major shareholders of EcoWorld are listed as follows:

Source: EcoWorld’s Annual Reports

Tan Sri Liew Kee Sin is the Chairman of EcoWorld. Liew Tian Xiong, who is his son is a major shareholder of EcoWorld and an Executive Director of the company.

Dato’ Leong Kim Wah is a key shareholder through his shareholdings in Syabas Tropikal Sdn Bhd, which has an interest in SHSB and his holdings directly in EWD. He is appointed as the Deputy Chairman of EcoWorld.

Tan Sri Abdul Rashid bin Abdul Manaf is a key shareholder via his stakes in EWD. He is appointed as a non-executive director of EcoWorld.

  • P/E Ratio
    For the last 12 months, EcoWorld made RM 190.5 million in earnings or 6.47 sen in earnings per share (EPS). As of 21 October 2019, EcoWorld’s stock price is trading at 68 sen per share. Hence, its current P/E Ratio is 10.51, the lowest since its reverse takeover (RTO) in 2014.

  • P/B Ratio
    As of 31 July 2019, EcoWorld has net assets of RM 1.50 a share. Hence, its current P/B Ratio is 0.45, the lowest in 5 years.

  • Dividend Yields
    Since its RTO in 2014, EcoWorld has yet to pay a single sen in dividends to its existing shareholders. 

VIA’s Verdict 

EcoWorld has remained profitable over the last four years. Moving ahead, most of its projects, be it in Malaysia or abroad, are in their growth stages. The board of directors had approved a sales target of RM 6 billion per year over the next 2 years for both EcoWorld Malaysia and Eco World International Bhd, offering the company income visibility in the light of a soft real estate market. 

As I write, EcoWorld is trading at its historical lows in terms of P/E & P/B Ratios. But, it currently offers no dividends to its existing shareholders. 

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