- 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 RM1.77/share based on a 25% discount to our fully-diluted NAV of RM2.36/share.

- Eco World’s 1-into-2 stock split will go ex on 20 January with the entitlement date set on 22 January.

- Eco World will be launching four new projects this financial year. New projects include EcoSanctuary, EcoTerraces, EcoTropics, and EcoBusiness Park 3. Additionally, the group will launch the subsequent phases of its other projects that were launched in FY14. The company has set a sales target of RM3bil for FY15.We understand that its recent launch of Phase 2 terrace homes at EcoMajestic (Semenyih) were encouraging. Average selling price is about RM300psf with built up of 2,400psf.

- However, we believe the key valuation driver would be Eco World’s ability to sustain pre-sales momentum and grow land acquisition to drive NAV growth.

- On a separate note, EcoWorld Investment Co Ltd – a private vehicle helmed by Tan Sri Liew Kee Sin and Datuk Voon Tin Yow – is acquiring a 75% stake in UK-based property developer, Ballymore Group. EcoWorld-Ballymore will acquire the three regeneration projects in London from Ballymore Group for £429mil (RM2.3bil) with a total GDV of £2.2bil (RM12bil):- (1) London City Island (GDV: £614mil or RM3.3bil) at Canary Wharf; (2) Arrowhead Quay (GDV: £591mil or RM3.2bil) at south of Canary Wharf; and (3) Embassy Garden (GDV: £995mil or RM5.4bil) at Nine Elms. This project is a direct competition to the Battersea Project (where Tan Sri Liew is chairman) given its close proximity.

- The key risk of these developments are:

(1) We see currency risk given the significant appreciation of sterling pound vis-à-vis Asian currencies (see Exhibit 1), making London properties more expensive. Majority of buyers for the Battersea project are foreign. Phase 2 of Battersea is selling at about £2,000psf currently compared to its maiden launch of £900psf-£1,000psf in 2013.

(2) A new regime of United Kingdom (UK) capital gain tax (CGT) will be implemented on April 6 on sale of a UK property on future gains. This will particularly affect non-UK residents, which are currently exempted from CGT on gains made on UK property. There will be a rebasing of the base cost in property values in April.

- While financing for EcoWorld-Ballymore’s acquisitions is unclear, we believe this will eventually be reshuffled into the proposed listing of Eco World International Bhd, a special purpose acquisition company (SPAC), given the SPAC’s right of first refusal to acquire a75% stake in EcoWorld-Ballymore. Eco World plans to subscribe a 30% stake in the SPAC.

Source: AmeSecurities