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Friday, November 21, 2014

Eco World Development - Corporate exercise to complete by 1QCY15 BUY


- We reaffirm our BUY recommendation on Eco World Development Bhd (Eco World) with an unchanged fair value of RM5.20/share – a 25% discount to our pre-acquisition NAV of RM6.94/share. Post an impending corporate exercise, our ex-all fair value is RM1.96/share based on a 25% discount to our fully-diluted NAV of RM2.61/share.

- Eco World’s 12-month core net profit was below expectations. The group reported 12-month core net profit of RM5.8mil, accounting for 89% of our FY14F (13- months) previous estimates of RM6.5mil and 64% of consensus.

- We have trimmed our earnings estimates by 7% for FY14F to RM6.1mil to reflect lower margins. Higher marketing cost was incurred to promote ongoing phases of Kota Masai project and to introduce the new EcoTropics and EcoBusiness Park 3 (to be launched pending approval of the revised master plan).

- The YoY decrease in revenue was in line given the absence of sizeable launches and completion of Saujana Glenmarie in 1Q.

- As for the 13-month full-year FY14F (year ended October), Eco World registered property sales of RM166mil, attributed to Saujana Glenmarie and EcoTropics (56% take-up rate).The group’s full-year results are scheduled for release on 10 December.

- Eco World Sdn Bhd (Eco World S/B) achieved strong property sales of RM3bil (exceeding its RM2bil target) driven by EcoSky, EcoMajestic, EcoBotanic, EcoSpring and EcoBusiness Park 1. All projects achieved more than 70% take-up rate, with the exception of EcoSpring at 54%.

- The strong property sales from Eco World S/B would enhance Eco World’s earnings from FY15F onwards, upon completion of the acquisition of development rights. This is expected to complete by January 2015.

- Eco World’s corporate exercise involving the proposed share subscription, share split, right issue with warrants and private placement, are expected to complete by 1QCY15. Refer to Exhibit 2 for details on the timeline.

- While we like Eco World’s strong management team supported by proven track record, the group must continue to grow land acquisition to drive NAV growth given the significant share capital expansion post the corporate exercise.

Source: AmeSecurities

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