The property developer booked an impairment of RM81 million on its investment in its international arm Eco World International Bhd (EWI) in Q4 FY2022, in addition to the RM57.3 million impairment recognised in FY2021.
Impairment of assets refers to a reduction in the book value of a company’s assets to reflect a decline in their market value.
For the financial year ended Oct 31, 2022 (FY2022), EcoWorld Malaysia’s net profit dropped 14% to RM157.21 million from RM182.74 million a year earlier.
Revenue for FY2022 was flat at RM2.04 billion year-on-year despite recording a higher gross profit by 15%, mainly due to higher margins achieved in FY2022 following the realisation of cost savings from several completed and near-completion phases.
The group declared a third interim dividend of 2 sen per share in Q4, bringing the total dividends declared for FY2022 to 5 sen per share.
The EcoWorld Ballymore blackhole
In its filing with Bursa Malaysia last Friday, EcoWorld Malaysia said EWI recorded a 47.7% higher loss in Q4 FY2022 compared to a year ago.
This was a result of a further impairment of its investment in the EcoWorld Ballymore joint venture (JV) in London amounting to RM37.95 million recognised during the quarter.
“This was due to a longer period of time than previously expected for the JV to generate future cash flows, and a higher weighted average cost of capital applied to discount these estimated future cash flows,” it said.
As a consequence, EcoWorld Malaysia reassessed the carrying value of its investment in EWI.
“A higher weighted average cost of capital was applied to discount the estimated future cashflows from EWI, given the more than 200-basis point increase in the UK risk-free rates as at Oct 31, 2022 as compared to Oct 31, 2021,” it explained.
EWI posted a bigger net loss of RM95.73 million in Q4 FY2022 from RM56.26 million a year ago, due to further impairment on the group’s investment in EcoWorld Ballymore. This was the group’s highest quarterly net loss since its listing on Bursa Malaysia in 2017.
For FY2022, EWI suffered a net loss of RM234.42 million compared to a net profit of RM13.57 million in FY2021, its highest annual net loss since its listing. EWI achieved RM2.158 billion sales in FY2022, 57% higher than in FY2021.
Having launched its first project in 2015, EWI now has 18 ongoing and upcoming projects in the UK and Australia with a gross development value of £4.7 billion (RM25.3 billion) and A$0.7 billion (RM2.08 bilion) respectively, according to EWI’s website.
Apart from EcoWorld Malaysia, the other major shareholder of EWI is GuocoLand Ltd, a regional real estate development and investment company listed on the Singapore Exchange since 1978.
Positives for EcoWorld Malaysia
Given the dreadful Q4 numbers, EcoWorld president and CEO Chang Khim Wah sought to highlight some positives for the group.
The group revealed it achieved the highest-ever sales of RM3.84 billion in FY2022, exceeding its sales target of RM3.5 billion and surpassing its previous record high of RM3.82 billion achieved in FY2016.
“EcoWorld Malaysia had our best year ever in FY2022 with record sales and profits achieved by our Malaysian operations.
“This is the fruit of many years of hard work by the team to reinvent our business model, reset our cost structure and digitalise our operations to future-proof our business going forward,” he said in a press statement.
Chang said some 20% of its sales in FY2022 came from its sizeable and growing industrial portfolio.
“Our commercial precincts are also thriving as our efforts to build and create value as well as success in attracting a largely owner-occupier customer base has attracted many retailers and business owners.
“Underpinning all this is our township development model which gives us tremendous flexibility in adjusting and adapting our product range to suit changing market needs and demands,” he continued.
Chang noted the group’s strategic decision to launch more upgrader and luxury homes in FY2022, across all three regions of its operations, yielded very positive results.
“Close to RM1.7 billion of homes priced above RM650,000 were sold, representing 44% of total group sales.
“Homes priced below RM650,000 also made up a sizeable component of EcoWorld Malaysia’s portfolio with RM648.9 million sales achieved this year,” Chang added.
At the market close today, EcoWorld Malaysia’s shares ended 1.5 sen lower to 64 sen, giving it a market capitalisation of RM1.9 billion while EWI rose 2.5 sen to 37 sen, valuing the company at RM875.3 million.