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Eco World Development Group Bhd
(Nov 21, RM4.33)
Maintain “buy” with an unchanged target price (TP) of RM6:
The fourth quarter of financial year 2014 (4QFY14) earnings missed expectation at RM0.8 million, dragged down by high marketing costs for its new projects in Kota Masai in Johor. However, earnings will improve significantly in FY15 upon completion of the massive corporate exercise next quarter (extraordinary general meeting by mid-Dec 14).

The corporate exercise to increase its land bank to 4,400 acres (1,780ha) [RM43.5 billion gross development value] will be a significant milestone for the group. It will provide clear earnings visibility and the group will have a larger balance sheet to undertake more projects.

Eco World Sdn Bhd (ECW) is targeting RM5 billion property sales over FY14 to FY15 forecast, which is unprecedented for a new developer. It has already achieved RM3 billion property sales year-to-date-Oct 14. Its strong branding power will continue to command market confidence; this is evident at its latest launch of Merrydale (terrace houses, more than RM680,000/unit) at EcoMajestic@Semenyih.

ECW will participate in the proposed intial public offering of Eco World International as a special purpose acquisition company to develop property projects overseas. This will be completed by the second half of calendar year 2015 (2HCY15).

ECW will invest RM562 million for the 30% stake, allowing the group to venture overseas with minimal leverage.

We nudged down FY15 forecast earnings by 25%, after factoring in the delayed completion of the corporate exercise (initially expected to be completed by end-CY14).

We are retaining our RM6 TP, which is based on a 20% discount to our revised net asset value (pre-share split).

We continue to like ECW for the proven and impeccable track record of its key senior executives, which has helped the developer to establish strong branding among property buyers.

Risks are relatively weaker property sentiment and tighter bank landing.

The surge in property prices over the last few years, coupled with recent tightening measures, could weaken property sales as property buyers turn more cautious.

Stricter lending guidelines by banks due to rising housing debt could lead to softer sales. — AllianceDBS Research, Nov 21

Eco-World_24Nov2014_theedgemarkets

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

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