This article first appeared in The Edge Financial Daily, on September 25, 2015.

Eco World Development Group Bhd
(Sept 23, RM1.50)
Maintain buy with an unchanged target price (TP) of RM1.70: Eco World Development Group Bhd (EcoWorld) has proposed to acquire 2,198.4 acres (889.66ha) of leasehold land in Puncak Alam for RM1.18 billion, implying RM12.30 per sq ft.

The land bank has a potential gross development value (GDV) of RM15 billion, comprising an integrated township (Eco Gardens) and a business park (Eco Business Park V) which is accessible via the Kuala Lumpur-Kuala Selangor Expressway, Guthrie Corridor Expressway and North-South Expressway. The proposed acquisition is expected to be completed by the second quarter of calendar year 2016 (2QCY16).

The price of the Puncak Alam land stands at 8% of its GDV, which is comparable to MKH Bhd’s 10% for the 550-acre Hillpark Shah Alam, which directly faces University Teknologi Mara.

The first phase of Eco Gardens will feature landed homes priced from RM400,000 per unit, which is expected to receive overwhelming response judging by the strong sales performance for Hillpark Shah Alam. This project will also be EcoWorld’s signature township for the North Western Klang Valley corridor.

Under the new business model, large township development will be undertaken by a special-purpose vehicle and EcoWorld will rope in up to three investors and retain a minimum of 30% stake in the project. It will assume the role of a development manager, enabling EcoWorld to earn a new income stream while enjoying development profits.

Eco Gardens will be developed under the new business model, though plans are still at an early stage. Assuming a 15% net margin, a development period of 25 years and a conservative 30% stake in Eco Gardens, this will boost our revalued net asset valuation estimate (RNAV) for EcoWorld by 5%, or nine sen per share.

EcoWorld may only require a cash outlay of RM106 million, which is 70% debt financing, for the 30% stake. We maintain a buy call and a TP of RM1.70, based on a 20% discount to the RNAV. — Alliance DBS, Sept 23