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Eco World Development Group Bhd
(May 12, RM4.68)
Initiating coverage with add call and target price of RM8.00: We initiate coverage on Eco World with an “add” call and implied target price of RM8 (ex-rights and warrants target basis of parity with revised net asset value). This provides investors 72% upside.
Eco World is now one of our top picks in the property sector. The recently announced acquisition of landbank worth RM3.8 billion is the main potential rerating catalyst.
Since last year, S P Setia Bhd has suffered a spate of departures including that of several senior management figures. Together, they set up Eco World Sdn Bhd (EWSB) which went on a landbanking spree, snapping up around 3,000 acres (1,214ha) of land throughout Malaysia. By end-2013, EWSB’s holding company, together with the son of then S P Setia chief executive officer Tan Sri Liew Kee Sin, bought a 65% stake in Focal Aims Holdings Bhd, which subsequently changed its name to Eco World.
On April 25, Eco World announced the acquisition of EWSB’s landbank for RM3.8 billion as well as a 1-for-1 share split, a 1-for-2 rights issue with 4-for-5 free warrants and a 20% private placement.
The enlarged Eco World will own around 4,433 acres of landbank in the Klang Valley, Johor and Penang with a gross development value of RM43.5 billion.
Since EWSB’s maiden launch last September, it has chalked up RM1.13 billion sales. Eco World is targeting new sales of RM2 billion for financial year 2014 ending Sept 30 (FY14) and RM3 billion for FY15, putting the figures close to that of Mah Sing Group Bhd and UEM Sunrise Bhd.
It was announced earlier this year that EWSB had won the bid to develop 470 acres of land in Batu Kawan, Penang, while more recently Eco World acquired 309 acres of land in Canal City, Selangor. We believe there are many landbanking opportunities domestically and internationally as the group is in a hurry to grow and to challenge the existing market leaders.
Liew joined Eco World’s board on May 5 as a non-independent and non-executive director and he brings with him the credibility and track record that made S P Setia Malaysia’s best and most admired developer.
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This article first appeared in The Edge Financial Daily, on May 14, 2014.
