Eco World gains 8% over plan to list EWI to develop projects abroad

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KUALA LUMPUR (Oct 17): Shares of Eco World Development Bhd was the top gainer on Bursa Malaysia in early trade after it announced its participation in the proposed listing of Eco World International Berhad (EWI) to develop property projects overseas.

As at 10.55am, the counter was trading 31 sen or 8.1% higher at RM4.15, giving it a market capitalisation of RM972.74 million. Some 147, 900 units changed hands.

Eco World yesterday said EWI, spearheaded by Tan Sri Liew Kee Sin, has proposed to list the entity as a special purpose acquisition company (SPAC) on Bursa’s main board, and Eco World intends to buy a 30% stake in EWI upon the listing.

Eco World also expressed its interest to subscribe for 1.125 billion shares of 1 sen each in EWI, as well as a similar number of free detachable warrants for RM562.5 billion.

In a note to client today, Alliance DBS Research maintained its “buy” call for the stock with an unchanged target price of RM3.84.

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

"This is likely to drive its explosive earnings trajectory over financial year 2013 and financial year 2015 (FY13 to FY15) earnings compounded annual growth rate (CAGR) of 78%," it said.

Alliance DBS said with the associate stake in EWI, Eco World will be able to venture overseas without excessive leverage, although the proposed subscription may raise its net gearing to 1X by FY15.

"Also, it will be able to focus on Malaysian projects which have received overwhelming response from property purchasers. Eco World has already secured RM2.1 billion in sales as at July 2014 despite softer sentiment in the property market," said the research house.

Meanwhile, Maybank Investment Bank reiterated its "buy" rating on the counter and believed the proceeds raised from the listing of EWI would be used to acquire properties in the United Kingdom and Australia.

"A 1.2-acre land located at Church Street in Sydney, Australia held by the unlisted Eco World will likely be injected into the SPAC," Maybank IB said in a note today.

"We are positive on this latest development as the investment will allow Eco World to gain exposure to overseas property markets without overstretching its balance sheet especially when most of the overseas accounting rules only allow recognition of property development profits on completion basis," it said.

Maybank IB is maintaining Eco World's earnings forecasts but place the target price of RM6.59 under review pending further details.

According to Maybank IB's projection, Eco World is expected to pull in RM180.2 million and RM11.7 million of revenue and net core profit respectively in the current financial year (FY14) ending Oct 31.

It also sees Eco World’s revenue for FY15 skyrocket to RM936.4 million while core net profit will jump to RM48.4 million.