This article first appeared in The Edge Financial Daily, on June 10, 2016.

Eco World Development Group Bhd
(June 9, RM1.27)
Maintain buy with a lower target price (TP) of RM1.62: Eco World Development Group Bhd (EcoWorld) has rescinded its proposed acquisition of a land parcel in Batu Kawan, Penang. The 181.96ha of leasehold land (comprising a golf course and a mixed  development)  was valued at RM781.25 million. The reason for the cancellation is due to higher-than-expected acreage required for the golf course development, which adversely impacted the viability of the project. 

EcoWorld has paid RM156.25 million for a 20% deposit to Penang Development Corp and will make an announcement in due course after both parties entered into a deed of rescission to give effect to the rescission. Its revised net asset value (RNAV) will be reduced by 6% to RM2.16 per share from RM2.30. 

The total gross development value of the company will also be reduced by RM10 billion or 13% to RM64.96 billion. However, the rescission will also lighten EcoWorld’s near-term capital commitment and reduce the pressure on its balance sheet. Our estimate shows that end-financial year 2016 (FY16) net gearing is likely to be reduced to 0.52 times, from an earlier estimate of 0.6 times.

Our FY16 sales target of RM3.5 billion is maintained as the Batu Kawan land is not targeted for a FY16 launch. We also maintain our core earnings estimates for both FY16 and FY17.

We have reduced our TP to RM1.62 (from RM1.72). However,  we maintain our “buy” call due to EcoWorld’s leadership in securing property sales, superior earnings growth prospects and strong branding. — MIDF Research, June 9