KEY INVESTMENT HIGHLIGHTS

• Expanding landbank in Johor

• Affordable homes project on the land

• Minimal impact on balance sheet

• Earnings estimate maintained

• Maintain BUY with an unchanged TP of RM1.02

Expanding landbank in Johor. Eco World Development Group (ECOWLD) announced that its subsidiary Melia Spring Sdn Bhd has entered into agreement with Permodalan Darul Taz’zim Sdn Bhd (PDT) for the acquisition and development of 200 acres land in Johor for a base land price of RM304.9m. The proposed land acquisition is expected to be completed by end of 2020.

Affordable homes project on the land. We view the land acquisition positively as it is in line with ECOWLD’s recently announced plans to offer homes with good amenities and affordable price range. The 200 acres land is right next to ECOWLD existing project Eco Botanic in Johor. ECOWLD plans to develop the land into a mixed residential and commercial township with estimated GDV of RM1.67b where large component of the development will comprise affordable products for first time home buyers and the M40 target group. The proposed development is expected to increase population base and vibrancy of Eco Botanic. Land cost to total GDV of 18% is also decent.

Minimal impact on balance sheet. Impact on balance sheet from the land acquisition is expected to be minimal due to the staggered payment terms. RM6m (1% deposit and 1% base price) is to be paid within 3 months while the remaining purchase consideration of RM299m to be paid over a 7-year period which would allow ECOWLD to better manage its cash flow. Meanwhile, near-term earnings impact is expected to be minimal as the project is expected to launch in 2021. Note that 20% profit from the project will be shared with PDT.

Maintain BUY with an unchanged TP of RM1.02. We make no changes to our earnings forecast for FY20/21F. We also maintain our TP of RM1.02, pending further information on the project development timeline on the land. Our TP of RM1.02 premised on our RNAV discount of 55%. We maintain our BUY recommendation on ECOWLD due to its attractive valuation and stable earnings outlook.

Source: MIDF Research - 17 Dec 2019