GUOCOL, ECOWLD and Tan Sri Liew have entered into a shareholders’ agreement for EWI. Target listing is in 1QCY17. IPO Price is determined by way of institutional book-building. Overall, we are positive with the impact of EWI already built into our valuations. No changes to earnings. Reiterate OUTPERFORM and TP of RM1.58.

GUOCOLAND Ltd to be a strategic partner in EWI. ECOWLD, GUOCOLAND Ltd (GUOCOL) and Tan Sri Liew Kee Sin have entered into a shareholders’ agreement with respective stakes of 27%, 27% and 10.3% in EWI. Also, Tan Sri Liew, Liew Tian Xiong and ECWLD Dev Hldgs Bhd must maintain a minimum of 30% in ECOWLD. To avoid conflict of interests, ECOWLD and EWI will undertake local and international developments, respectively. ECOWLD also entered into a collaboration agreement with EWI so that both can enjoy synergistic benefits like branding and cross selling. This comes as no surprise to us given such earlier speculations. Target listing is in 1QCY17 while IPO Price will be determined by institutional book-building exercise. To recap, the issuance involves 2.15b EWI shares with warrants entitlement on a 2-for-5 basis (exercise price: 121% of Final Retail Price). ECOWLD is funding their part of their subscription via the 25% placement and internally generated cash/borrowings (refer overleaf).

We are positive on the progress of EWI listing given that EWI has already commenced sale and operations of its overseas property developments. EWI stands to benefit from the synergies and strengths from GUOCOL and ECOWLD. GUOCOL (listed on SGX) is part of Guoco Group (listed on HKEX) which in turn is part of Hong Leong Group. GUOCOL is a strong regional player (in Singapore, China, Hong Kong, Vietnam) with strong financial backing from their parent and has a long presence in London (c. 5,000 hotel rooms in London including the brands like Thistle, Every, Clermont, to name a few).

BREXIT is not a major deterrent in London. Post BREXIT, the group has managed to secure decent sales momentum from London. YTD, FY16 sales from London is GBP472m vs. the full FY15 sales of GBP436m as London is still viewed as a safe haven for many nationalities given its transparent governance and laws. (Refer overleaf).

Reiterate OUTPERFORM. No changes to earnings as EWI contributions will only kick in from FY18 onwards while we wait for guidance on initial cost impact; we have also imputed for the EWI subscription in our earlier valuations and balance sheet impact. Our TP remains at RM1.58 based on 51% Property RNAV discount and implied FD SoP discount of 46%. Beside the fact that the group has one of the highest sales targets and had demonstrated its ability to meet its targets, the group is likely to enjoy a slew of major news flow given its aggressive growth trajectory, including listing of EWI, and other land deals via their “Partnership For Growth Model”.

Downside risks to our call include: (i) weaker-than-expected property sales, (ii) higher-than-expected sales and administrative costs, (iii) negative real estate policies, and (iv) tighter lending environment.

Source: Kenanga Research - 28 Oct 2016