Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on July 25 - 31, 2016.

EWEIN Bhd’s warrant, Ewein-WA, appears to be a cheaper alternative for investors who wish to ride the growth potential of the Penang-based property developer.

Ewein-WA carries a revised strike price of 61 sen and a one-to-one conversion ratio. The five-year warrant will expire on June 9 next year. The derivative was issued in June 2012, under a bonus issue of free warrants on the basis of one free warrant for every two existing shares.

The price of Ewein-WA has been trending lower over the last six months, down from its 52-week peak of 86 sen on Jan 12 this year. Year to date, the warrant has fallen by more than 46%, closing at 30.5 sen last Wednesday.

The warrant is currently trading at a 1.6% discount to the mother share, which closed at 93 sen last Wednesday. At zero premium, Ewein-WA would theoretically be worth 32 sen, which is almost 5% higher than the warrant’s closing price on that day.

Currently, PublicInvest Research gives Ewein’s shares a fair value of RM1.20, giving it a 29% potential upside. That means at zero premium, Ewein-WA would theoretically be worth 59 sen if its mother share hits the target price. This presents an upside of 93% for the warrant.

Public Investment Bank Bhd research head, Ching Weng Jin, says that Ewein’s maiden project, called City of Dreams (COD 1), is a new landmark in Penang, which will probably be talked about for some time to come.

“Ewein, though a late entrant into the property space but by no means one that should be discounted, will see earnings enjoy a quantum leap in the coming years,” he says in a non-rated report dated May 20 .

PublicInvest Research derives a fair value of RM1.20 for Ewein, premised on a 40% discount to its fully-diluted sum-of-parts (SOP) calculations.

“A higher discount is ascribed to account for potential execution delays, in part owing to the lack of experience in undertaking projects of this nature, while also to account for possible land reclamation-related hiccups,” Ching explains.

He says a successful launch and delivery of COD 1, which has a gross development value (GDV) of RM800 million, will go a long way to cement Ewein’s position as an up-and-coming player to be reckoned with. The project is expected to generate RM200 million in pre-tax profit over the next four years.

Moving forward, Ewein plans to put up another three towers in COD 2, which will have an estimated GDV of RM800 million.

“Perhaps the cherry on the cake, and one which the group will be able to savour well into the mid-2020s, this mammoth development will be undertaken by Ewein Zenith Sdn Bhd on an exclusive basis on a 50-acre parcel, yielding an approximate GDV of RM13.89 billion,” says Ching.

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