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City & Country: Aiming for the big league

EcoSpring, set amidst lakes and streams, is framed by a tropical landscape

HAVING bulked up over the past year, property developer Eco World Development Group has set itself a lofty sales target of RM5 billion in two years. Its ability to execute has yet to be tested, but the new kid on the block has a valuable asset on its side — an experienced team, says group president and CEO Datuk Chang Khim Wah.

With its shiny marble floor and a high ceiling with grand-looking hanging crystal lights, Eco World Development Group Bhd’s gallery in Johor Baru looks more like a five-star hotel. The wow factor was just what the company wanted. After all, says group president and CEO Datuk Chang Khim Wah, quality is key to the developer.

Eco World has been making the headlines since emerging on the property development scene more than a year ago, and for good reason too. The company was formed and is headed by the same team that made S P Setia Bhd the country’s foremost property developer. Its directors include Tan Sri Abdul Rashid Abdul Manaf and Datuk Leong Kok Wah, both former directors of S P Setia; Liew Tian Xiong, the son of former S P Setia president and CEO Tan Sri Liew Kee Sin; Datuk S Rajoo who headed S P Setia’s developments in the north; and Chang, who headed S P Setia’s southern developments. Kee Sin joined Eco World’s board as a non-independent non-executive director on May 5.

Last year, Eco World acquired about 3,000 acres in the country’s three main property hot spots — the Klang Valley, Penang and Johor. At the end of the year, its holding company and Tian Xiong acquired a 65% stake in Johor-based property developer Focal Aims Holdings Bhd for RM230.69 million.

On April 25 this year, Eco World announced a major corporate exercise that will give it an immediate and enlarged presence in the Klang Valley, Iskandar Malaysia and Penang.

With proposed acquisitions of development rights from its subsidiaries, Eco World will increase its landbank from 1,326 acres to 4,433 acres with its gross development value (GDV) growing from RM13.5 billion to RM43.5 billion. This will expand its development pipeline from 3 to 11 projects, which are slated to be launched within the next one to two years. Recently, the company acquired 309 acres in Canal City, Selangor, from Tropicana Corp Bhd for RM470.67 million.

Eco World’s first two projects — the 9.6-acre integrated development EcoSky in the Klang Valley and the 325.1-acre township EcoBotanic in Iskandar Malaysia — were launched late last year. As at March 31 this year, the two developments had chalked up sales of RM1.13 billion.

With a larger size and presence in the property market, Eco World has set its sights on transforming itself into one of Malaysia’s top property developers.

An emerging force to be reckoned with

Eco World has set itself what some may consider an ambitious sales target of RM5 billion in two years (RM2 billion in 2014 and RM3 billion in 2015) — figures that are usually associated with big names such as Mah Sing Group Bhd.

While it is a new kid on the block with untested execution capability, it has a valuable asset — an experienced team.

“Confidence is a key word. We have a team of very experienced people. Most of us have been working together since the mid-1990s and have gone through many cycles of development,” says Chang.

“We understand our jobs and we have always been agile and able to adapt quickly.  We come together to brainstorm and in every difficult situation, we have been able to come up with solutions. We believe this tradition is still being upheld in Eco World and I believe in the team.”

Foo Gee Jen, managing director of CH Williams Talhar & Wong Sdn Bhd (WTW), agrees that the people at Eco World give the developer a distinct advantage.

“A lot of people see Eco World as another S P Setia because the team Liew senior had built in S P Setia is running the show in Eco World. I believe Eco World will do even better because most of the team members are already well known in the market. So, it is not like any other new developer. I can see customers of S P Setia following them to Eco World,” says Foo.

To propel the company forward, Eco World has chosen to focus on locations its team knows and understands — the Klang Valley, Iskandar Malaysia and Penang.

“These are where the catchment and financial power are. The Klang Valley is the capital, Iskandar Malaysia is growing while Penang has an expanding economy. These are the three best spots in Malaysia to build our base as quickly as possible. Our manpower is also concentrated in these three areas and we won’t spread ourselves thin by focusing on them,” says Chang.

“The first few years are very important to us, we have to get the right product, the right marketing and quality. So we must be in locations we know and understand.”

With four launches scheduled for May 25 and another five to six targeted for the next 12 months, Chang feels that the company has gained momentum.

“I think you can see we are a fast-growing company. We are happy with our performance in the 18 months we have been around, but we also know we have a long way to go. We are forever at the drawing board to find ways to grow even faster.”

However, growing fast will not be at the expense of the buyers, stresses Chang.

“Delivery is key. We can say anything we want but in the end, we have to be able to deliver to not only our buyers, but also our shareholders and stakeholders. I can’t comment on whether we have been very successful, but we are rolling and we will give our very best.”

Based on the calibre of its team, there are certain expectations of Eco World. In a May 11 report, CIMB Equities Research says Eco World will perform as well as S P Setia and has the benefit of experience that will enable it to achieve big success quickly.

Has this put pressure on Eco World to catch up with the industry’s leaders?

While Chang cannot answer for the other shareholders, he says he is focused on multiplying the company’s market catchment and enhancing value for its shareholders and stakeholders.

“I’m not looking at our competitors. Yes, we came from S P Setia, but S P Setia is just one company. There are many other big developers with certain market share in the industry. As far as I’m concerned, our job is to expand as quickly as we can, ensure we get the right product in the right place and then focus on delivering. If we do all this right — and we do have all the people in place to do it properly — I think the results will come.

“While we are not overly concerned about the other companies, we still must have knowledge of the market trends and movement. In the end, it’s about making sure we can perform. If we are ahead, that’s good. If we have to catch up, then we will do just that.”

Chang is keenly aware of the risks, citing the country’s stability and the world’s economy as the two main factors that could derail its plans. Even so, he is confident that Eco World is in a good position to ride out any downturn with a diverse product range being one of its key strategies.

“We already have the expertise to build a range of products, whether it’s a township or commercial, integrated or industrial development. For example, if the commercial market is not doing well, we can fall back on our townships.

“We believe it’s good to have a presence in most segments of the market, and we will continue to do so as long as we have the expertise. It will help us if there are any adverse economic situations. Today, we believe in our townships, we think they are attractive and will do well. Next year, it could be something else. What’s most important is having the right people with the right expertise.”

EcoMajestic, the developer’s largest eco township in the Klang Valley, will have landscaped gardens with gazebos

Economic changes and market risks

Maybank Investment Bank Bhd (Maybank IB) says in a May 12 note that the implementation of the Goods and Services Tax and an expected hike in the overnight policy rate will impact housing affordability, which in turn will affect sales.

The research house notes that in a scenario where property prices adjust 6% alongside a 50bps rise in interest rates by end-2014, the Housing Affordability Index, which has been trending downwards since 2009, could decline further. This could lead to a drop in property sales.

In Iskandar Malaysia, where Eco World has seven projects with a GDV of more than RM21 billion, Maybank IB says investors are concerned about rising competition, especially with the entry of Chinese developers, and an oversupply situation.

Chang believes Eco World has enough in its arsenal to attract buyers and earn their trust.

“Changes in economic and government policies are beyond any developer’s control. Whilst the market has been challenging since the second half of last year, following the announcement of numerous policies at both federal and state government levels to curb speculation, underlying real demand is also very strong. Nevertheless, buyers are increasingly selective and apart from good location and concepts, their confidence in the developer’s brand and ability to deliver is of paramount importance.

“Developers that have a strong track record and been able to anticipate what the market wants and launch products that meet their customers’ current lifestyle needs whilst providing good long-term value appreciation potential have continued to do well,” says Chang.

He points out that Eco World launched EcoSky and EcoBotanic after the cooling measures were announced, and both have “performed tremendously with combined sales achieved of RM1.13 billion”.

“It has a lot to do with our philosophy, marketing and design, which we will continuously enhance. We are selling to a lot of end-users, so it comes back to what we can offer them in a given point in time, and how we moderate our pace accordingly. We want to be a developer where even in the worst of times, people still have faith in us, and when they need a home, they will still choose us.”  

CIMB echoes Chang’s confidence, saying, “Eco World should weather any slowdown in the property sector better than its peers as most of its landbank is earmarked for landed townships where it has the flexibility to alter its product mix. In the current environment, landed affordable homes should continue to see strong demand as there remains a shortage of such products.”

WTW’s Foo does not consider Eco World a new player and thus does not think it will face risks that are commonly associated with new companies.

“I think Eco World is equal to or even better than some of the old hands in the industry because of its team. Put Liew senior, who has officially joined the board, in the equation and it is even stronger.”

CIMB believes Eco World’s key weakness is its relatively high obligations and start-up costs. It notes that after the recent acquisitions, the group’s total borrowings will increase from RM52 million to RM208 million. Including RM1.85 billion in deferred payments for land cost, total borrowings would stand at slightly above RM2 billion. However, it says, high gearing is not unusual for a company in the early stages of growth and strong sales and cash flow should provide it with a buffer against high obligation levels.

It also notes that as the company is new with an increasing number of employees — and sales having started only last September — its profit margin is likely to be compressed by high overheads.

“We estimate narrow pretax margins of 10% to 15% in the early years, lower than S P Setia’s and the sector average of 20% to 25%. But as many new projects will get off the ground in the coming years, the high staff cost will be spread over many projects and economies of scale can be reaped.”

Chang believes that with six projects to be launched by year-end, Eco World will be able to achieve its sales target of RM2 billion for FY2014.

“Our sales target for FY2015 of RM3 billion remains unchanged as well. With another five projects to be added to the pipeline, we are confident that we will be able to achieve the targets set.”

In the DNA

Eco World will be launching four developments simultaneously on May 25. They are its flagship 1,073.1-acre township EcoMajestic in Semenyih, Selangor; EcoSpring and EcoSummer with a combined 613.8 acres in Tebrau, Iskandar Malaysia; and the 612-acre Eco Business Park 1. These have a GDV of RM11.14 billion, RM5.87 billion and RM3.8 billion respectively.

Chang: Delivery is key. We can say anything we want but in the end, we have to be able to deliver to not only our buyers, but also our shareholders and stakeholders.

EcoMajestic will be the developer’s largest eco township in the Klang Valley and is inspired by Malaysia’s rich heritage. The development will offer terraced houses with colonial-style designs and bungalow lots. It will also have over 100 acres of green and open space, a sizeable 150-acre commercial precinct and a dedicated LEKAS-EcoMajestic interchange to improve accessibility.

“The freehold EcoMajestic is only about 20 minutes from Cheras and 10 minutes from Kajang. Both areas are very densely populated, so we expect to see a spillover from them. We named it EcoMajestic because it’s designed to be regal. There’s a bridge at the entrance and we will have landscaped gardens with gazebos,” says Chang.

According to him, the first phase will comprise about 600 terraced houses with a GDV of RM400 million and prices start at RM550,000.

“Once we have launched the residential component, we will start planning the commercial part. We intend to build a new city centre for this corridor, which may become the biggest landed strata development in the region.”

EcoSpring and EcoSummer, which sit side by side, are set amidst lakes and streams, framed by a tropical landscape and inspired by classical European architecture. It will offer a mix of affordable and upgrader terraced, cluster and semi-detached homes. The freehold developments will have an 18-acre town park, some 16% of which is reserved for greenery and lakes. Prices start at RM650,000.

Eco Business Park 1 is a fully serviced green business park catering for medium and light industrial businesses. It will comprise commercial shopoffices, cluster factories, semi-detached factories, detached factories and customised factories. Prices start at RM1.5 million.  

“It is in our DNA to emphasise landscaping in our townships. Key features of our developments are gardens or ponds at the main entrance. Another important element is security. We believe this is very important for our townships as well as our business parks,” says Chang, adding that response to pre-sales marketing has been very encouraging. He expects the launches to do as well.

“Wherever our development is located, we always look for a high percentage of end-users. So, we focus a lot on the overall design of our master plan and the environment to make sure we are competitive on that front. It’s necessary to create that critical mass in each township.

“We believe that if we do our townships well, that will gain us a number of followers. And if they are happy with us, they will buy our commercial properties and everything will fall into place. The commercial land in the townships will become very valuable in the end with the GDV as much as the overall development,” says Chang.

While Eco World is targeting end-users, Chang says it is not neglecting investors.

“We want investors to come in too as they bring a certain level of excitement, which will generate momentum for us. So we want a combination of end-users and investors. I think our products can offer both these groups good value.”

On a personal note, Chang acknowledges that there is pressure on him, but as he is someone who cannot sit still, “it has been a fun ride”.

“I think all of us get to do more than what we did in our previous company and because our foundations are already solid, we can afford to implement new ideas. We are still learning, but we are not on a beginner’s curve. We have the spirit to push harder and because we have the team in place, we can do so without too much fear. If we do what we planned, our stakeholders and shareholders will enjoy the fruits of our labours.”


This article first appeared in The Edge Malaysia Weekly, on May 19 - 25, 2014.

 

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