Investment Highlights

• We maintain our HOLD recommendation on Eco World Development (EcoWorld) with an unchanged fair value of RM0.73 per share (Exhibit 2). We make no changes to our FY20, FY21 and FY22 earnings forecasts.

• EcoWorld, through its subsidiary Melia Spring Sdn Bhd, has proposed to acquire 200 acres of freehold land located in Pulai, Johor Bahru (Exhibit 1), for RM304.9mil from Iskandar Investment Bhd.

• The new land is located in Iskandar Puteri next to EcoWorld’s Eco Botanic township, the group’s first township project in Iskandar Malaysia. The land is proposed for a mixed residential and commercial township development suitable for both first-time home buyers and the M40 group with a GDV of RM1.67bil. The land cost to GDV of 18% is slightly higher than the average development of about 15%. The base price of RM35psf and the nomination fee were arrived at on a willing buyer-willing seller basis after considering: (i) prospects of the new land in view of its strategic location and the readily available connectivity to highways; (ii) the potential of the new land for a mixed township development; and (iii) EcoWorld Malaysia’s knowledge of the market value of the properties surrounding the new land.

• EcoWorld plans to develop a mixed residential and commercial township development with a preliminary estimated GDV of RM1.67bil. A large component of the development will comprise relatively affordable products suitable for first-time home buyers and the M40 group. This is in line with EcoWorld Malaysia’s recently announced plans to introduce a new range of homes priced RM300K– RM450K to take advantage of the infrastructure and lifestyle amenities already in place at its various projects, which include Eco Botanic. This will also enable the group to ride on Eco Botanic’s success to expand its product offerings, thus complementing its overall master development strategy in Iskandar Puteri and reach out to a wider buyer segment.

• We believe this acquisition will enable EcoWorld to replenish its landbank in Iskandar Malaysia. Since 2014 the group has not acquired any new landbank down south. We make no changes to our earnings forecasts and FV since this proposal is still at the early stage. Maintain HOLD.

Source: AmInvest Research - 16 Dec 2019