- We maintain HOLD on Eco World Development with an unchanged fair value of RM1.60/share (25% discount to NAV). Eco World has entered into conditional SPAs with several vendors to acquire 2,198 acres of leasehold land for RM1.2bil. The land is located 45km from KL city centre and is accessible via several existing highways. Future accessibility would be enhanced via the West Coast Expressway and a proposed link-up to LATAR.

- Major townships/amenities in the vicinity include Hill Park Shah Alam (MKH), Bandar Saujana Utama (Glomac), Shah Alam 2 (IJM Land), Puncak Alam township and the UiTM Puncak Alam campus. Other developments located within a 10km radius include KWASA Damansara.

- The implied land cost of ~RM12psf appears fair given its size and future development potential. It is also Eco World’s second-cheapest land purchase after Eco Forest (~RM10psf). The landbank/GDV of ~8% would lower the group-wide average to 10% from 2014 (~13%). Based on a GDV of RM15bil over 15 years, this new development will bump up its GDV to ~RM75bil (end-August: RM60bil).

- The development (targeted margin: 20%) is modeled after its Eco Tropics/Business Park III projects in Johor. Its three key segments are: (i) Eco Gardens eco-township (1,400 acres); (ii) Eco Business Park V (518 acres); and (iii) Laman Indah affordable homes (280 acres). Earthworks for certain parts of the land have almost been completed.

- Roughly 80% of the land purchase is to be paid within three months from the completion of the SPAs, i.e by end-2Q 2016. For this, Eco World is looking to set up an SPV and invite equity partners (up to three) to co-develop the project while maintaining a minimum 30% stake. Such a move – together with its appointment as development manager – would help reduce its funding commitments.

- This new landbank would solidify Eco World’s foothold in the Klang Valley (KV), notably on the North West (NW) corridor. Phase 1 (landed homes from RM400k) could kick off by 4Q 2016. While its long-term potential is intact, the project may take more time to mature as it is situated in a relatively young growth corridor compared with its other townships in more established areas to the South (Eco Majestic) and South East (Eco Sanctuary) on KV. The flipside is its affordable products which can attract first time buyers/upgraders and strong branding/execution.

- Based on a 30% stake in the SPV and more conservative margins of 18%, the project could add RM0.11/share (FV: +5%) to its NAV. We maintain our earnings for now pending the conclusion of the SPA and funding structure.

Source: AmeSecurities Research - 23 Sep 2015