Thursday 28 Mar 2024
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KUALA LUMPUR (Sept 23): At a glance, Eco World Development Bhd’s proposed RM1.18 billion land buy for a RM15 billion township in Ijok, Selangor, is deemed contrarian amid a weaker Malaysian real estate backdrop.

The current backdrop has prompted developers to reduce sales targets, as factors including a weaker ringgit hit consumer sentiment. Analysts said while they were concerned that Eco World's exercise would stretch its balance sheet, they also viewed the move as a long-term positive for the company.

“Unlike most of the other developers that have cut sales targets and turned cautious, Eco World is still taking advantage of landbanking opportunities and aggressively carrying out new launches.

“Surprisingly, the recent launch of Eco Meadows enjoyed overnight queues. This exemplifies Eco World’s strong execution capability. We view Eco World’s gumption positively,” CIMB Investment Bank Bhd wrote in a note today.

Kenanga Investment Bank Bhd said it was "longer-term positive" on Eco World's land buy, as long as the group was able to secure the right partners, and assumes an associate stake in the project.

In a note today, Kenanga said Eco World would maintain a minimum 30% stake in the special purpose vehicle for the Ijok project.

“We believe this model is one of the best ways to grow their brand and future project earnings, without overtaxing their balance sheet. If they do take on a subsidiary stake in this project, we do not discount the possibility of cash calls, which would be dilutive to shareholders’ returns," Kenanga said.

Kenanga maintained its “outperform” call for Eco World shares, with an unchanged target price of RM1.90. "Until we have some concrete news on the project partners, we have opted to exclude this project from our valuations and estimates," said Kenanga.

Meanwhile, CIMB kept its “add” call on Eco World, with an unchanged TP of RM1.90.

At 12:30pm, Eco World shares rose two sen or 1.3% to settle at RM1.52, bringing the company's market capitalisation to RM3.59 billion. The share price compares to Eco World's latest reported net assets per share of RM1.33.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)

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