- We reaffirm our BUY on Eco World Development with a higher fair value of RM6.24/share (vs. RM5.82/share previously) – a 10% discount to our pre-acquisition NAV of RM6.94/share. This follows its proposed acquisition of a parcel of land in Ulu Langat. Post the corporate exercise, our ex-all fair value is RM2.45/share (vs. RM2.39/share previously), based on a 10% discount to our fully-diluted NAV of RM2.72/share.
- Eco World has announced the acquisition of 493 acres of land in Beranang, Ulu Langat for RM225.3mil. The land is located in close proximity to Eco Majestic (~5km) and is nestled between the towns of Semenyih and Broga.
- Eco World intends to develop the land for a mixed residential and commercial township. The project has an estimated GDV of RM3.5bil. There is no indication of the launch timeline yet.
- It is currently an agriculture land. The group will convert the land use to a mixed residential and commercial development upon completion of the acquisition. The acquisition is expected to be completed in 4QCY14 and is to be funded through borrowings.
- Eco World’s entry cost is RM10.50 psf (excluding infrastructure cost and conversion premium). Our channel checks revealed that land prices in Semenyih are around RM20 psf. Eco World paid RM20.30 psf for the asset injection of Eco Majestic from Eco World Development Sdn Bhd.
- The land deal will increase its landbank profile in Semenyih to 1,566 acres (46%). Eco World already has a good presence in the fast-expanding southern part of the Klang Valley, riding on its largest township at EcoMajestic (1,073 acres).
- We expect the project to be well received as it will be skewed towards the affordable segment. The relatively attractive price point in Semenyih positions it to tap into the upgraders market and owner occupiers. The rising land prices within the KL city centre are triggering an outward migration to such outlying areas. To be sure, its recent launch of Eco Majestic (612 terrace units) achieved a strong take-up of 95%.
- Furthermore, the improved connectivity and accessibility (i.e. LEKAS Highway) together with the Bandar Kajang MRT would provide a solid platform for its Semenyih projects. Eco World intends to upgrade the existing connecting roads between Eco Majestic and the said land.
- We estimate the land acquisition to boost the group’s new GDV to RM47bil (+9%) and landbank size to 4,926 acres (+11%). Eco World must continue to demonstrate its astute landbanking deals to drive NAV growth, considering its massive share capital expansion, post corporate exercise. No changes to our earnings forecasts and BUY rating.
Source: AmeSecurities
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