- We reaffirm our BUY rating on Eco World Development Group Bhd (Eco World) with an unchanged fair value of RM5.82/share – a 10% discount to our estimated pre-acquisition NAV of RM6.46/share. Post-acquisition and the equity fund-raising exercise, our ex-all fair value is RM2.39/share, based on a similar 10% discount to our fully diluted NAV of RM2.65/share.

- The Malaysia Insider reported that Eco World is expected to win the RM7bil redevelopment project of the Pudu Jail land in Kuala Lumpur.

- This development is said to be a 70:30 joint venture with UDA Holdings Bhd.

- This prime land measures 19 acres and used to house Kuala Lumpur’s main prison (101-year old Pudu Jail), which was officially closed since 1996.

- This land has been abandoned for the past few years despite being made an Economic Transformation Programme project. It was reported that in 2011, Everbright International Construction (a China-based developer) was suppose to get the project with a RM2bil investment with UDA.

- We are maintaining our earnings forecast and NAV model for now, pending further clarification from management.

- While its corporate exercise is expected to increase GDV significantly by more than 3x to RM43.5bil on the back of rapid land bank expansion to 4,433 acres, concern remains over its stretched valuations. It would take some time for the group’s earnings to expand to justify its currently stretched valuation given that earnings delivery is still at the early stages. The corporate exercise is expected to complete in October 2014.

- Land acquisitions are expected to be the primary valuation driver for Eco World. Given a recapitalised balance sheet (post the corporate exercises), Eco World must demonstrate its ability to grow land acquisitions to drive NAV growth, considering its huge share capital expansion. 

Source: AmeSecurities