Broker: Maybank Investment Bank Berhad
Date of Report: June 18, 2025

Eco World Development: Industrial Land Sales Drive Strong Earnings Amid SST Uncertainty

Overview: Eco World Development’s Strategic Shift to Industrial Land Sales

Eco World Development (ECW) has strategically pivoted towards industrial land sales to buffer its earnings, particularly as the revised 6% Sales & Service Tax (SST) introduces uncertainty for short- to medium-term profitability. Despite potential margin pressures from its affordable housing (duduk) segment, ECW’s industrial property portfolio is expected to provide a robust earnings foundation due to higher margins and resilient demand.
With positive earnings prospects projected for FY25-27, the possibility of increased dividend payouts is on the table. Maybank Investment Bank Berhad maintains its “BUY” call on ECW, with a targeted price (TP) of MYR2.21 per share, representing a forecast upside of 18%. This outlook is underpinned by strong forward earnings momentum and the expected release of favourable 2QFY25 results.

Industrial Land Sales: Key Earnings Catalyst and Data Centre Focus

Investor sentiment around ECW’s industrial land sales, especially for data center (DC) developments, has improved. Notably, the second land sale to Microsoft (138 acres for MYR694 million) became unconditional on June 10, 2025, following the first unconditional deal in January 2025. These milestones reduce concerns about potential cancellations of DC-related sales, especially after announcements from key operators halting expansion due to US regulatory issues and broader market challenges.
Currently, two additional major land transactions—Princeton Digital Group (57 acres for MYR224 million) and Pearl Computing (58 acres for MYR266 million)—are anticipated to become unconditional by year-end, providing further earnings visibility.

SST Impact: Assessing Margin Pressure and Project Vulnerabilities

The revised 6% SST is poised to weigh on ECW’s operating margins, mainly due to higher construction costs in commercial and industrial property segments. As of February 2025, 43% of ECW’s MYR5 billion unbilled sales originate from these segments, including the Se.Duduk D’Kajang project, which is on commercial land.
Key considerations include:
Affordable “duduk” apartment projects face greater SST sensitivity due to thinner margins and price-sensitive customers.
Most business park infrastructure is already completed or nearing completion, except for Quantum Edge Business Park, potentially limiting SST’s impact on costs.
There is potential for residential units on commercial land to be exempt from SST, pending further regulatory clarification, which could soften the tax’s impact on ECW’s results.

Robust Earnings Outlook: Strong EPS Growth and Dividend Potential

Earnings forecasts remain unchanged, with ECW expected to achieve a three-year EPS compound annual growth rate (CAGR) of 21% from FY24 to FY27. This performance is driven by MYR1.7 billion in land sales secured between 2H24 and 1H25. A higher dividend payout is likely in the current year, supported by the robust earnings outlook.
While the reclassification of ECW International (ECWI) will trigger a mark-to-market loss, this is expected to be offset by a revaluation gain from the Paragon Pinnacle stake acquisition completed in February 2025, with the impact to be reflected in upcoming financial results.

Stock Performance and Key Financial Metrics

• Current Share Price: MYR1.88
• 12-Month Price Target: MYR2.21 (+18%)
• 52-Week High/Low: MYR2.15 / MYR1.42
• Market Capitalisation: MYR5.6 billion (USD1.3 billion)
• Issued Shares: 2,966 million
• Free Float: 27.0%
• Major Shareholders:
  • Syabas Tropikal Sdn. Bhd.: 32.7%
  • Liew Kee Sin: 8.7%
  • Eco World Development Holdings Sdn. Bhd.: 7.4%

Share Price Performance (% Absolute / Relative to Index)

• 1 Month: -4% / 0%
• 3 Months: -3% / -2%
• 12 Months: +15% / +21%

Key Financial Highlights (MYR millions, FYE Oct)

Major Industrial Land Sales Secured (2024-2025)

Risk Factors: Margin Pressure, Regulatory Changes, and Associate Performance

Potential downside risks to ECW’s earnings, target price, and rating include:

• Prolonged slowdown in Malaysia’s property sector
• Greater-than-expected losses from ECW’s 29%-owned associate, ECWI
• Weaker operating margins due to higher marketing expenses or increased construction material costs
• Regulatory or policy changes impacting property or industrial land sales

ESG Performance: Above-Average Ratings with Room to Improve

ECW scores 69/100 in Maybank’s proprietary ESG assessment, reflecting a solid framework and established policies, though quantitative environmental metrics require further advancement.
Key ESG Highlights:

• Constituent of FTSE4Good Bursa Malaysia Index since 2020
• Annual ABC (Anti-Bribery & Corruption) Policy training for all staff
• 93% of projects (FY23) have at least one EV charging station
• 89% of projects received green certifications in FY23
• 22% of developed area allocated to green spaces, exceeding the 15% target
• Board comprises 36% female and 27% Bumiputera members
• Zero reported corruption or whistleblowing cases in FY23
• 45% female workforce; 26 average training hours per staff
• Zero workplace fatalities in FY23
• MYR2.7 million spent on CSR initiatives, aiding 1,816 students

Environmental Targets & Performance:

• Scope 2 GHG emissions to be reduced by 20% by 2025 and 30% by 2030 (FY19 baseline: 6,976 tCO2e)
• Net zero GHG emissions by 2050
• Achieved 20% reduction in Scope 2 emissions to date
• Open spaces in developments: Target 15%, achieved 22% in FY23
• Employee satisfaction score: Target ≥82%, achieved 98%
• All projects to obtain certified green accreditation: Target 100%, achieved 89%

Comprehensive Financial Table: Key Ratios and Metrics (FY23A–FY27E)

RNAV and Valuation

ECW’s RNAV estimate (excluding MVV) is MYR5,269.2 million, with a fully diluted RNAV/share of MYR3.16. The TP is set at MYR2.21, applying a 0.7x price-to-RNAV multiple.

Conclusion: Positive Outlook With Strategic Industrial Expansion

Eco World Development is well positioned for strong earnings growth, anchored by industrial land sales and a proactive approach to ESG and sustainability. Despite potential headwinds from SST and property sector volatility, ECW’s strategic landbank monetization, robust project pipeline, and prudent financial management underpin its “BUY” rating and positive investment outlook for the coming years.