Eco World International Global Property Player

Transcription

1 20 March 2017 IPO Note Eco World International Global Property Player Non Rated Fair Value: RM1.30 INVESTMENT HIGHLIGHTS Solid sales of RM6.49b due to strong management team Strategic location and innovative projects Synergy from its strategic investor - Guocoland Expect positive earnings from FY18 onwards Non Rated with Fair Value of RM1.30 Solid sales of RM6.49b due to strong management team. In less than two years after the project launch, EWI has achieved cumulative sales of RM6.49b. This is a good testimony of management ability to generate sales and hence profit in the long term for investors. EWI is helmed by Tan Sri Dato' Sri Liew Kee Sin (Executive Vice Chairman) and Dato Teow Leong Seng (President and CEO). Tan Sri Liew has in depth knowledge of property development field with 28 years of experience. Strategic location and innovative projects. We gather that its projects in London (London City Island Phase 2, Embassy Gardens Phase 2, and Wardian) have easy access to public transport and road networks. Additionally, EWI s projects have distinctive and differentiated features. London City Island Phase 2 has the distinctive feature of Arts & Cultural Destination as it is the home of the English National Ballet. As for Embassy Gardens Phase 2, it has the distinctive feature of Floating transparent sky pool. Lastly, the Wardian London project has the distinctive feature of innovative landscaping with The Wardian Cases in which each apartment enjoys a fully-fledged garden. Synergy from its strategic investor - Guocoland. We believe that the subscription of 27% stake in EWI from GuocoLand Limited (GuocoLand) will bring in long term synergy for EWI. The Company has total assets exceeding SGD7.9b with property operations in Singapore, China, Malaysia and Vietnam comprising residential, hospitality, commercial and retail developments. In our view, potential coinvestment between EWI and Guocoland is possible in the future particularly in Singapore, China and the UK. Expect positive earnings from FY18 onwards. We expect EWI to register net loss of RM107m in FY17 before net profit of RM181m in FY18. As for FY19, earnings is expected to surge to RM432m. Key factor affecting the volatility of earnings is the recognition of revenue and profit in the UK and Australia which is based on completion method. Fair Value of RM1.30 based on 15% discount to EWI s estimated Fully Diluted Revalued Net Asset Valuation (FD RNAV) per share of RM1.53. The 15% discount is same as our SPSETIA s discount to RNAV. We believe that SPSETIA is the nearest comparison as it has property development projects in UK via Battersea Power Station. RETURN STATS IPO Price Fair Value Expected Share Price Return MIDF RESEARCH is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures RM1.20 RM % Expected Dividend Yield 0.0% Expected Total Return +8.3% STOCK INFO Existing number of shares Number of new shares upon listing Listing Market Cap upon IPO (based on indicative IPO price of RM1.20 per share) IPO TIMETABLE 247m 2,153m Main Market RM2,880m DATE Opening of application 9 March 2017 Closing of application 20 March 2017 Balloting of applications 22 March 2017 Allotment of shares 30 March 2017 Listing on Main Market 3 April 2017 Major Shareholders EcoWorld Development Group Berhad 27.0% GuocoLand 27.0% Tan Sri Liew Kee Sin 10.3%

2 INVESTMENT STATISTICS FYE Oct 2015A 2016A 2017F 2018F 2019F Revenue EBIT (2) (38) (45) (42) (44) PBT (2) (219) (104) Net Income (2) (220) (107) Core Net Income (2) (220) (107) EPS (sen) (0.10) (9.17) (4.47) Core EPS (sen) (0.10) (9.17) (4.46) Net DPS (sen) Net Dvd Yield Core PER NA NA NA NTA/share (RM) P/NTA Core ROE 0.0% -8.4% -4.2% 6.7% 13.8% Core ROA 0.0% -5.4% -2.6% 4.2% 9.8% Source: Company, Forecast by MIDF Research 1. Investment Merit Solid sales of RM6.49b due to strong management team. In less than two years after the project launch, EWI has achieved cumulative sales of RM6.49b out of which RM5.66b is generated from UK and RM0.83b from Australia. This is a good testimony of management ability to generate sales and hence profit in the long term for investors. EWI is helmed by Tan Sri Dato' Sri Liew Kee Sin (Executive Vice Chairman) and Dato Teow Leong Seng (President and CEO). Tan Sri Liew has in depth knowledge of property development field with 28 years of experience. During his 18 years tenure in SPSETIA, he has grown the company from a Klang Valley focused property company to an international property player with presence in six countries (Malaysia, Australia, UK, Singapore and Vietnam) by As for Dato Teow, he has more than 30 years of experience in the property development industry, corporate finance, accounting, financial management and real-estate finance. Strategic location and innovative projects. EWI has four property development projects (three in London, United Kingdom and one in Sydney, Australia). These projects has a combined total gross development value (GDV) of RM12.87b. We gather that its projects in London (London City Island Phase 2, Embassy Gardens Phase 2, and Wardian) have easy access to public transport and road networks. Additionally, EWI s projects have distinctive and differentiated features. For example, London City Island Phase 2 has the distinctive feature of Arts & Cultural Destination as it is the home of the English National Ballet. As for Embassy Gardens Phase 2, it has the distinctive feature of Floating transparent sky pool. Lastly, the Wardian London project has the distinctive feature of innovative landscaping with The Wardian Cases in which each apartment enjoys a fully-fledged garden. Synergy from its strategic investor - Guocoland. We believe that the subscription of 27% stake in EWI from GuocoLand Limited (GuocoLand) will bring in long term synergy for EWI. Note that GuocoLand is linked to Hong Leong Group and it has been listed in Main Board of Singapore Exchange (SGX) since The Company has total assets exceeding SGD7.9b with property operations in Singapore, China, Malaysia and Vietnam comprising residential, hospitality, commercial and retail developments. In our view, potential co-investment between EWI and Guocoland is possible in the future particularly in Singapore, China and the UK. 2

3 2. Financial Analysis Expect positive earnings from FY18 onwards. We expect EWI to register net loss of RM107m in FY17 before net profit of RM181m in FY18. As for FY19, earnings is expected to surge to RM432m. Key factor affecting the volatility of earnings is the recognition of revenue and profit in the UK and Australia which is based on completion method. As a result, we expect maiden profit only in FY18 due to targeted handover for: i) London City Island Phase 2 (Buildings A & M) in 1H18 and ii) Embassy Gardens Phase 2 (Block A04). Earnings will be stronger in FY19 due to more targeted handover and these include: i) London City Island Phase 2 (Buildings B, C, D & E) and Embassy Gardens Phase 2 (Block A05). There were no targeted handover in FY17 and hence we expect net loss. Earliest dividend from FY20 onwards. As EWI is still in a high growth stage, we expect the strong earnings growth from FY18 onwards with the growth rate exceeding 100%. As a result, we do not expect any dividends in FY17 up to FY19. In our view, the reinvestment of earnings in the Company to acquire landbanks or pare down debts should generate higher earnings in the long run as compared to paying dividends in the short term. As a result, we believe that any dividend payment will be only from FY20 onwards. 3. Valuation Fair Value of RM1.30. Our Fair Value is based on 15% discount to EWI s estimated Fully Diluted Revalued Net Asset Valuation (FD RNAV) per share of RM1.53. The 15% discount is same as our SPSETIA s discount to RNAV. We believe that SPSETIA is the nearest comparison as it has property development projects in UK via Battersea Power Station. Although the percentage of exposure differs significantly between EWI and SPSETIA, we think that the market will use the nearest comparison of SPSETIA as the best proxy of comparison. Other assumptions include i) total GDV estimated at RM12.87b, ii) GBPMYR rate of 5.40, iii) AUDMYR rate of 3.30 and iv) WACC of 10%. Table 1: EWI RNAV Landbank Location Remaining GDV (RM m) Methodology Stake Value (RM m) Ongoing Projects London City Island Phase 2 London, UK 3731 DCF: WACC 10% 75% Embassy Gardens Phase 2 London, UK 5038 DCF: WACC 10% 75% Wardian London London, UK 3056 DCF: WACC 10% 75% Sydney, West Village, Paramatta Australia 1040 DCF: WACC 10% 100% Total Properties Value Fixed Assets 2.3 Cash Other Assets (except deferred tax assets) Total Liabilities (excl. deferred tax liabilities) Total RNAV (RM m) Warrants 121% of issue price Fully Diluted No of Shares FD RNAV Per Share 1.53 Discount 15% Target Price (RM) 1.30 Source: Company, MIDF Research Forecast 3

4 4. Risks Exposure to the cycle of UK and Australia economy. As 92% of EWI GDV is generated from London United Kingdom, any weakness in the UK economy is expected to affect the sales of EWI projects. As of 4Q2016, UK GDP has expanded by 0.7% qoq and it has outperformed consensus expectation of 0.5% growth. For 2016, UK GDP has increased by 1.8% yoy. Having said that, there is still uncertainty remains on future GDP growth of the UK due to BREXIT. The same risk exist for Sydney property market which will be linked to Australia economy but the GDV exposure is less at 8%. Foreign currency movement. Due to its business nature with revenue exposure in Great Britain Pound (GBP) and Australian Dollar (AUD), the movement in these currencies will affect its earnings which is reported in Malaysian Ringgit (MYR). Our assumptions for GBPMYR and AUDMYR rate are 5.40 and 3.30, respectively. A 5% depreciation in GBPMYR rate will lower our RNAV value by 4%. For AUDMYR, a 5% depreciation should lower RNAV by 1%. 5. Company Background Property developer with exposure in UK and Australia. EWI is mainly involved in property development in international markets outside Malaysia. EWI focuses on developing real estate assets into high quality residential-led, mixed-use developments in mature markets with growth potential and favourable macroeconomic conditions such as the United Kingdom and Australia. Overall, the Company has four property development projects (three in London, United Kingdom and one in Sydney, Australia). These projects has a combined total gross development value (GDV) of RM12.87b. Up to Jan-2017, EWI has achieved cumulative sales of RM6.49b out of which RM5.66b is generated from UK and RM0.83b from Australia. Projects in London, United Kingdom are London City Island Phase 2, Embassy Gardens Phase 2, and Wardian London while project in Australia being West Village, Parramatta. The three property developments in London are held through EWI-Ballymore Holdings, its 75%-owned joint venture while property development in Australia is whollyowned by EWI. Figure 1: EWI Group Structure Source: Company 4

5 Figure 2: EWI Ongoing Property Development Projects Projects Location Description London, U.K. Estimated GDV First launch date Estimated Construction period London City Island Phase acres of land on the Leamouth Peninsula near Canary Wharf 9 buildings comprising: 1,130 private residential units 15 units of affordable homes Commercial area 691 mil May 2015 Oct H 2019 Embassy Gardens Phase acres of land located at the heart of Nine Elms 3 buildings comprising: 709 private residential units 163 units of affordable homes Commercial area 933 mil Sept 2015 Oct H 2021 Wardian London 1.35 acres of land situated next to Canary Wharf 2 towers comprising: 626 private residential units 138 units of affordable homes Commercial area 566 mil Sept 2015 May H 2020 Sydney, Australia West Village, Parramatta 1.18 acres of land located at the southern periphery of the Parramatta Central Business District A 39-storey tower and a 6- storey wrap around podium comprising: 398 private residential units Commercial and retail space AUD315 mil Jun H H 2020 Source: Company, MIDF Research 5

6 Figure 3: Location of the UK projects Source: Company Figure 4: Artist s impression of on-going projects London City Island Phase 2 in United Kingdom Embassy Gardens Phase 2 in United Kingdom Wardian London in United Kingdom West Village, Parramatta in Australia Source: Company 6

7 6. Management Strong management team. EWI is helmed by Tan Sri Dato' Sri Liew Kee Sin (Executive Vice Chairman) and Dato Teow Leong Seng (President and CEO). Tan Sri Liew has in depth knowledge of property development field with 28 years of experience. During his 18 years tenure in SPSETIA, he has grown the company from a Klang Valley focused property company to an international property player with presence in six countries (Malaysia, Australia, UK, Singapore and Vietnam) by As for Dato Teow, he has more than 30 years of experience in the property development industry, corporate finance, accounting, financial management and real-estate finance. Alan Lim, CFA alan.lim@midf.com.my Jessica Low, jessica.low@midf.com.my 7

8 MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad ( X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Total return is expected to be <-15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 8