- We reaffirm our BUY recommendation on Eco World Development Bhd (Eco World) with a revised fair value of RM2.60/share, based on a 25% discount to our pre-acquisition NAV of RM3.47/share, following the recent completion of the 1-into-2 share split. Post an impending corporate exercise, our ex-all fair value is RM1.77/share, based on a similar 25% discount to our fully-diluted NAV of RM2.36/share.
- Eco World is part of the consortium to develop the former Pudu Jail site (19 acres) together with UDA Holdings and EPF. UDA and Eco World will hold a 40% equity stake each in BBCC Development Sdn Bhd (BBCC), while EPF would hold a 20% stake. EPF’s participation is subject to a due diligence exercise.
- This development is earmarked for a mixed residential and commercial development called the Bukit Bintang City Centre. Estimated GDV is RM8bil over a development period of 8-10 years with a plot ratio of at least 8x.
- The consortium will pay development rights to the land owner, i.e. UDA, of RM1bil. This is equivalent to a land cost of RM1,200psf. UDA has the first right of refusal on the properties.
- The key positives are:
(1) It is a sizeable prime land in the heart of the city.
(2) EPF is a strong financial and long-term partner that matches the development life cycle.
- However, the greatest challenge is whether buyers would be keen to buy a property on a former prison site given the perceived stigma.
- The consortium needs to create excitement through the successful development of the lifestyle mall (NLA: 1.2milsf) and offices. Such a move will have a spillover impact on demand for subsequently launches of residential properties. The consortium has signed a MoU with Mitsui Fudosan of Japan for its shopping and retail component. The maiden launch of its office is expected to happen in 1QCY16.
- Given Eco World’s 40% stake, this project will be equity accounted. Gearing is expected to be 1x following Eco World’s borrowings portion of RM106mil (first payment of development rights and initial cost).
- We maintain our EPS estimates and NAV pending further details.
Source: AmeSecurities
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