Land acquisitions to be Eco World’s primary valuation driver

Eco World Development 
Group Bhd
(June 23, RM5.39)
Maintain buy with target price of RM5.82: Online news portal The Malaysian Insider has reported that Eco World is expected to win the RM7 billion redevelopment project involving the land on which the former Pudu Jail stands. This development is said to be a 70:30 joint venture with UDA Holdings Bhd. The prime land measures 19 acres (7.85ha) and used to house Kuala Lumpur’s main prison (the 101-year-old Pudu Jail), which was officially closed in 1996.

The site has been abandoned for the past few years despite being made an Economic Transformation Programme project. It was reported that in 2011, Everbright International Construction (a China-based developer) was supposed to get the redevelopment project with a RM2 billion investment with UDA.

We are maintaining our earnings forecast and net asset value (NAV) model for now, pending further clarification from management.

While its corporate exercise is expected to increase its gross development value significantly by more than 3 times to RM43.5 billion on the back of rapid landbank expansion to 4,433 acres, concerns remain over its stretched valuations. It would take some time for the group’s earnings to expand to justify its currently stretched valuation given that earnings delivery is still at the early stages. The corporate exercise is expected to be completed in October 2014.

Land acquisitions are expected to be the primary valuation driver for Eco World. Given a recapitalised balance sheet (post the corporate exercises), Eco World must demonstrate its ability to grow land acquisitions to drive NAV growth, considering its huge share capital expansion. — AmResearch, June 23



This article first appeared in The Edge Financial Daily, on June 24, 2014.


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