Eco World venturing overseas through SPAC

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Eco World Development Group Bhd
(Oct 17, RM4.23)
Maintain buy with target price of RM6:
Eco World has announced that it will participate in the proposed listing of Eco World International Bhd (Eco World International) as a special purpose acquisition company (SPAC) to develop property projects overseas.

Eco World will subscribe to a 30% stake in Eco World International (1.125 billion shares and 1.125 billion free warrants) at 50 sen per share for RM562.5 million.

The proposed initial public offering of Eco World International is likely to be completed by the second quarter (2Q) of calendar year 2015, which is set to raise some RM1.5 billion gross proceeds to acquire overseas real estate assets.

Like Eco World, Eco World International will be spearheaded by a group of experienced senior executives including Tan Sri Liew Kee Sin, Datuk Teow Leong Seng and Datuk Heah Kok Boon, who have had illustrious careers in S P Setia Bhd.

The management team has a proven track record, which suggests Eco World International is likely to be well-received by investors. Liew is the man behind the hugely successful RM40 billion landmark Battersea Power Station project in London.

With the associate stake in Eco World International, Eco World will be able to venture overseas without excessive leverage, though the proposed subscription may raise its net gearing to one times by financial year 2015. 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 this year) despite softer sentiment in the property market.

We maintain our “buy” call. 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 FY13 to FY15F (two-year earnings compound annual growth rate of 78%). — AllianceDBS Research, Oct 17

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This article first appeared in The Edge Financial Daily, on October 20, 2014.