PETALING JAYA: Kenanga Research which previously rated Eco World Development Group Bhd (EcoWorld) as “outperform” has downgraded its recommendation to “market perform” in response to a recent surge in its share price.

Year-to-date, the property developer’s share price has surged 80%.

In a note today, Kenanga Research said while it maintains its forecasts and target price (TP) of RM1.03, its nine months of financial year 2023 (M9 FY2023) net profit of RM186 million was “lower than expected”, which resulted in 76% of its full-year forecast and 74% of consensus estimates.

Nevertheless, the company’s gross margin improved due to a more favourable product mix which generated 20% growth in net profit for the period.

Kenanga Research said despite being on track to meet its sales target for FY2023, EcoWorld will remain cautious about its future launches and intends to prioritise sustainable profits over aggressive top-line expansion.

Furthermore, EcoWorld will increase its ‘Duduk’ product line, known for lifestyle-oriented offerings, and broaden its industrial properties with the development of Eco Business Park VI in Kulai, Johor.

Kenanga Research maintained EcoWorld’s TP based on a 50% discount to the revised net asset value.

“EcoWorld’s strong branding, responsiveness to market conditions, and timely presence in Johor’s industrial scene are some of the favourable factors,” said Kenanga Research.

Beneficiary of EWI’s bumper dividend

On another note, Kenanga Research said EcoWorld aims to bolster its land acquisition pipeline with the dividends declared by its joint venture, Eco World International Bhd (EWI). With this, it projected a special dividend following a dividend windfall from EWI.

EWI declared yesterday a second tranche dividend of RM144 million to add to the first bumper dividend of RM792 million declared last month, bringing the grand total to RM936 million.

Likewise, Maybank Investment Bank (Maybank IB) also downgraded its recommendation for EcoWorld to a “hold” rating based on the expectation of a total return of less than 10%.

It noted EcoWorld has secured RM3.1 billion in property sales in the 10 months of FY2023 (10M FY2023), a figure that is likely to exceed its sales target for FY2023.

However, this remains within Maybank IB’s sales assumption of RM3.7 billion for FY2023, with a majority of the sales coming from upmarket homes and industrial parks, it added.

The research house revised up its earnings forecasts by 0.3% for FY2023, FY2024 (6.4%) and FY2025 (4.1%) to factor in EWI’s dividend windfall, adjustments to EWI loss projections, and the Kulai and new Duduk affordable apartment projects.

Maybank IB has also increased its dividend per share forecasts for FY2023/2024/2025 as it expects the dividend windfall from EWI will strengthen EcoWorld’s balance sheet, and the company is actively seeking new landbank opportunities.

EcoWorld’s net profit for the third quarter ended July 31 (Q3 FY2023) rose 43% to RM66.34 million from RM46.39 million a year ago.

Quarterly revenue increased by 7.41% to RM476.85 million from RM443.97 million a year earlier.

EcoWorld’s share price closed unchanged at RM1.10, giving it a market capitalisation of RM3.24 billion.