10 things I learned from the 2019 Eco World Development Group AGM

Eco World Development Group Berhad (EcoWorld Malaysia) is well-known for its township development in the suburbs of Klang Valley. It owns a 27% stake in Eco World International Berhad (EcoWorld International) that is also a listed company in Malaysia. As a relatively young company that is operated by an experienced team, it managed to hand over 4,700 residential homes, commercial units, and industrial factories to customers in 2018, bringing its total completed units close to 10,000.

Along with other property players, EcoWorld Malaysia faced headwinds since incorporating in 2013. They were hit with a number of property cooling measures including rising real property gains tax (RPGT), the abolishment of developer interest bearing scheme (DIBS), as well as an increase in floor prices of properties foreigners are allowed to buy in Malaysia. In the recent Budget 2019, stricter RPGT and stamp duties were announced.

In spite of the challenges, EcoWorld’s annual total brand sales exceeded RM6 billion for four consecutive years. I took the chance to attend its AGM to learn more about the company as I was intrigued by its branding and marketing strategy.

Here are 10 things I learned from the 2019 EcoWorld Malaysia AGM:

1. EcoWorld Malaysia recorded a revenue of RM2.2 billion in 2018, which represents a drop of 24.1% from RM2.9 billion in 2017. Although contributions of profits from joint ventures were reflected in the shares of results of joint ventures in 2018, its net profit decreased year-on-year by 21.0% from RM209.7 million to RM165.6 million.

2. EcoWorld Malaysia and EcoWorld International achieved sales of RM3.1 billion and RM3.3 billion in 2018 against their target of RM3.5 billion and RM3.0 billion respectively. A two-year sales target of RM6.0 billion each has been set for EcoWorld Malaysia and EcoWorld International. The new targets are not very ambitious as they have set a similar target for EcoWorld International since 2018. Meanwhile, the management downgraded its annual sales target for EcoWorld Malaysia from RM3.5 billion to about RM3.0 billion. There is RM6.4 billion in locked-in progress billings for the next three years (2019: 50%; 2020: 35%; 2021: 15%) as at 31 October 2018. When the Minority Shareholder Watch Group (MSWG) enquired about the exact sales target for 2019, Chang chose not to disclose. (Note: Sales are transaction figures that have been locked in once sales and purchase agreements are signed whereas revenue only records transaction amounts based on progress of construction and percentage of completion.

3. The fourth fiscal quarter (August until October) of 2018 contributed to about half of EcoWorld Malaysia’s sales. Chang mentioned that their HELP2OWN (H2O) housing loan scheme, which ran between July and October 2018 led to the large contribution in 4Q 2018.

Source: 2019 EcoWorld Malaysia AGM presentation slides

Sixty percent of EcoWorld’s homebuyers were aged below 40 in 2018. Some of them may not have sufficient cash for down-payment and banks may not provide them with sufficient loans. In this regard, the H2O scheme might prove itself to be an effective bridge solution.

Source: 2019 EcoWorld Malaysia AGM presentation slides

However, the fourth quarter also commenced after Malaysia’s 14th general election in 2018. It could be that most homebuyers held back their decisions to buy houses prior to the election and bought houses only after that. In January 2019, EcoWorld Malaysia launched the Home Ownership Programme with EcoWorld (HOPE) which is an overarching home ownership solution that encompasses the STAY2OWN (S2O) scheme and H2O. EcoWorld Malaysia also participates in FundMyHome, an alternative home financing scheme owned by EdgeProp Sdn. Bhd. in Malaysia.

4. No dividend has been distributed to EcoWorld Malaysia shareholders since 2014. As a growing company, EcoWorld Malaysia prefers to conserve cash. A shareholder asked if the company would implement an employee share option scheme that benefits its employees. Executive director and CFO Heah Kok Boon appreciated the suggestion. He replied that EcoWorld Malaysia needs to evaluate the potential impact of a share option scheme on the company’s profitability and staff retention before implementing it.

5. A shareholder pointed out that EcoWorld Malaysia’s high gearing ratio of 0.9 and wanted to know how the company plans to manage it. Chang acknowledged the high gearing ratio as EcoWorld Malaysia developed 18 new projects in a short period of time and borrowings were required to finance project expenses and working capital. Fortunately, EcoWorld Malaysia has a quick turnaround for projects and manages to be ahead of repayments for most of its projects. To avoid borrowing too much money, a joint venture model has been adopted instead recently.

6. A shareholder noted that EcoWorld Malaysia’s inventory is piling up and stood at RM140.5 million in 2018. Chang explained that the amount had two components: old and new inventories. The old inventories were inherited from Focal Aims Holdings Berhad during its reverse takeover. They include factories and bungalow lands in Eco Tropic in Kota Masai. It is difficult to sell a whole plot of land as it is not gated or guarded and in a bad shape. At the same time, new infrastructure is costly to build. The new inventories are bumiputera semi-detached houses and shops in Eco Botanic, Johor Bahru that do not sell well. (Johor Bahru has a Bumiputera quota of 40%.) The government is trying to move and release unsold units, but the progress is slow.

7. Selling, general, and administrative (SGA) expenses decreased 29.3% year-on-year from RM362.9 million in 2017 to RM256.5 million in 2018. Chang attributed the improvement in SGA expenses to a change in marketing strategies from traditional to social media platforms that are more targeted, as well as cost optimisation exercises to upskill their employees. EcoWorld Malaysia is quite prudent with its financial management and will hire specialists to run more of its operations digitally.

8. Build-to-Rent (BtR) is a potential growth driver moving forward for EcoWorld International. The number of new houses built could not keep pace with the increase in the number of jobs in London. Over the past 20 years, the number of jobs increased by 40% in London whereas the number of houses went up by only 15%. Through BtR, EcoWorld International leases and manages rental homes as well as collects recurring rental on behalf of investors under long-term contracts. Open market sales in the UK will be affected by Brexit, which is not the case for BtR as it targets locals looking for rental properties. There is no intention to expand into other European countries for now because of the language barrier.

9. Bukit Bintang City Centre (BBCC) is jointly developed by UDA Holdings Bhd, EcoWorld Malaysia, and the Employees Provident Fund. BBCC occupies 19.4 acres of the former Pudu Prison site within the Golden Triangle. It consists of residential and commercial developments including hotels, retail shops, an entertainment hub as well as a transit hub[U16] . It has an expected gross development value of RM8.7 billion and achieved RM1.4 billion sales as of March 2019.

10. As a response to MSWG’s question on building affordable homes, EcoWorld Malaysia replied that 52% of its properties are priced below RM1 million which falls under the category of mass housing. Out of these properties, it built about 2,500 affordable houses in projects in Selangor (Eco Majestic and Rumah Selangorku) and Johor. In my opnion, these houses are not exactly affordable for the regular homebuyer as most of their properties are easily priced between RM750,000 and RM1 million. EcoWorld Malaysia is seen as a premiem housing developer and the management has also mentioned that it’s easier to position themselves as a premium developer first and build affordable housing later, rather than the other way around.

Liked our analysis of this AGM?Click here to view a complete list of AGMs we’ve attended »

Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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