10 June 2016 Corporate Update Eco World Development Group Berhad Landbanking at Bukit Raja, Klang Maintain BUY Adjusted Target Price (TP): RM1.68 (Previously RM1.62) INVESTMENT HIGHLIGHTS Acquiring 50% stake in JV-Co for RM303.5m JV-Co to develop Eco Ardence with GDV of RM8.5b Valuation is fair at RM56 per sq ft Positive on the news Maintain BUY with higher Target Price of RM1.68 Acquiring 50% stake in JV-Co for RM303.5m. Eco World Development Group Berhad (ECOWLD) has entered into a conditional share sale and purchase agreement with Cascara Sdn. Bhd. (Cascara) to purchase a 50% stake in Jendela Hikmat for RM303.5m. ECOWLD and Cascara have agreed to develop the land which belongs to Jendela Hikmat, the joint venture company (JV-Co). The JV structure allows Cascara (the seller of the 50% stake) to still participate in the future potential of the land. Refer to Page 2 for the structure of the JV-Co. JV-Co to develop Eco Ardence with GDV of RM8.5b. We gather that the JV-Co will develop its 533.92 acres of landbank located at Bukit Raja, Klang into a mixed residential and commercial development to be known as Eco Ardence. Effective agreed land price is RM1.29b or RM56 per sq ft (after imputing RM722.1m of liabilities and provision for tax revaluation surplus and cash of RM36.5m). Valuation is fair at RM56 per sq ft although it is much lower than the asking price of RM180 per sq ft for individual land plots in surrounding area. We believe that the discount is justified as it involved a much bigger piece of land hence the future consideration of required public infra expenditures. Positive on the news. Our Fully Diluted RNAV value will be increased by 6% to RM2.24 per share (from RM2.16) after imputing Eco Ardence. Total GDV of the Company will be increased by RM8.5b or 13% to RM73.46b. The JV structure allows ECOWLD to avoid pressure on its balance sheet as it does not need to consolidate the liabilities of the JV- Co. We estimate that end-fy16 net gearing to increase to 0.57x (from earlier estimate of 0.52x). Sales and earnings estimate maintained. FY17 sales target is maintained as the contribution from Eco Ardence (estimated to be launched in 1HFY17) should neutralize the impact of the loss of contribution from Eco Marina, Batu Kawan project. FY16 sales target of RM3.5b (which is more conservative than management target of RM4.0b) is also maintained. RETURN STATS Price (9-Jun-2016) Target Price Expected Share Price Return RM1.27 RM1.68 +32.3% Expected Dividend Yield +0.0% Expected Total Return +32.3% STOCK INFO KLCI 1650.51 Bursa / Bloomberg Board / Sector Syariah Compliant 8206 / ECW MK Main/ Properties Yes Issued shares (mil) 2364.27 Par Value (RM) 0.50 Market cap. (RM m) 3,002.62 Price over NA 0.47 52-wk price Range RM1.17 - RM1.67 Beta (against KLCI) 1.53 3-mth Avg Daily Vol 1.56m 3-mth Avg Daily Value Major Shareholders (%) RM2.12m Sinarmas Harta Sdn Bhd 32.02% Eco World Development 21.29% Liew Tian Xiong 11.27% EPF 8.68% MIDF RESEARCH is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures
INVESTMENT STATISTICS FYE Oct 2013A* 2014A** 2015A 2016F 2017F Revenue 156 148 1,712 2,255 2,715 EBIT 34 15 96 254 356 PBT 30 12 74 195 341 Net Income 24 7 44 125 229 Core Net Income 24 9 44 125 229 EPS (sen) 9.58 2.83 2.64 4.97 7.73 Core EPS (sen) 9.58 3.54 2.65 4.97 7.73 Net DPS (sen) 1.0 0.0 0.0 0.0 0.0 Net Dvd Yield 0.8 0.0 0.0 0.0 0.0 Core PER 13.3 35.8 47.9 25.6 16.4 NTA/share (RM) 1.26 1.29 1.26 1.31 1.45 P/NTA 1.01 0.99 1.01 0.97 0.88 Core ROE 7.6% 2.8% 1.4% 3.8% 5.3% Core ROA 5.0% 1.3% 0.6% 1.6% 2.3% *FY13 financial year ends on September **FY14 financial year comprises 13 months as financial year end was changed to October Source: Company, Forecast by MIDF Research Maintain BUY with higher TP of RM1.68. We have increased our Target Price to RM1.68 (from RM1.62) after adding Eco Ardence land at Bukit Raja Klang into our RNAV. Valuation method is unchanged by using Price-to-RNAV (PRNAV) of 0.75x reflecting 0.5SD valuation above mean. Maintain our BUY call due to ECOWLD s leadership in securing property sales, superior earnings growth prospects and strong branding. STRUCTURE OF THE JOINT VENTURE Source: Company 2
DAILY PRICE CHART Alan Lim, CFA alan.lim@midf.com.my 03-2173 8464 Source: Bloomberg LOCATION OF THE LAND Source: Company 3
ECOWORLD RNAV Landbank/Buildings Location Remaining GDV Methodology Stake Value (RM m) Ongoing Projects Saujana Glenmarie Eco Sky Eco Majestic Eco Sanctuary Eco Botanic Eco Tropics Shah Alam, Selangor 13 DCF @ WACC 10% 100% 2.5 Jalan Ipoh, KL 338 DCF @ WACC 10% 100% 57.9 Semenyih, 1194. Selangor 9581 DCF @ WACC 10% 100% 8 Telok Panglima Garang, Selangor 7347 DCF @ WACC 10% 100% 918.1 Taman Bukit Indah, Johor 2547 DCF @ WACC 10% 100% 375.3 Pasir Gudang, Johor 2953 DCF @ WACC 10% 100% 366.6 Eco Spring & Summer Johor 5071 DCF @ WACC 10% 100% 631.6 Eco Business Park I Senai, Johor 3345 DCF @ WACC 10% 100% 407.9 Eco Business Park III Pasir Gudang, Johor 1898 DCF @ WACC 10% 100% 235.7 Eco Terraces Paya Terubong, Penang Island 374 DCF @ WACC 10% 100% 53.8 Eco Meadows Seberang Prai, Penang 750 DCF @ WACC 10% 100% 113.0 Unbilled Sales All projects 4158 DCF @ WACC 10% 100% 744.6 New projects to be launched soon in FY16 Bukit Bintang City Centre Jalan Hang Tuah, KL 8782 DCF @ WACC 10% 40% 460.5 Eco Business Park II Senai, Johor 3009 DCF @ WACC 10% 100% 476.5 Remaining Landbank Size (ac) Size (Sq ft) Eco Forest Price (RM/sqft) Value (RM m) Stake Semenyih, Selangor 493 21,462,012 32 100% 686.8 Eco Gardens Ijok, Selangor 1680 73,172,088 12 100% 902.9 Eco Business Park V Ijok, Selangor 519 22,590,216 12 100% 278.8 Eco Macalister Georgetown, Penang Island 1 47,916 456 100% 21.8 Eco Ardence Klang, Selangor 534 23,257,555 49 50% 565.2 Total Properties Value Investment Properties 17.3 Fixed Assets 176.4 Cash 517.2 - Payment for Eco Ardence Land 303.5 Other Assets (except deferred tax assets) 763.3 8494.2 4
Total Liabilities (excl. deferred tax liabilities) Total RNAV (RM m) No of shares (m) - 3731.1 5933.8 2364. 3 RNAV per share (RM) 2.51 Warrants @ RM2.08 525.4 Placement @ RM1.30 591.1 3480. Fully Diluted No of Shares 7 FD RNAV Per Share 2.24 Discount 25% Target Price (RM) 1.68 Source: Company, MIDF Research Forecast 5
KEY FINANCIAL INFO Income Statement Balance Sheet FY Oct (RM m) 13A 14A 15A 16E 17E FY Oct (RM m) 13A 14A 15A 16E 17E Revenue 156 148 1712 2255 2715 Land held for property dev. 302 303 3709 3547 3487 Gross Profit 48 42 412 586 706 Property development costs 82 40 1693 2255 2715 Admin Expenses -12-18 -188-198 -207 Plant and Equipment 1 4 176 223 269 Selling & Marketing Expenses -4-11 -147-155 -162 Cash & Equivalents 25 43 517 378 1127 Other Income 1 2 20 20 20 Inventories 40 50 25 68 81 EBIT 34 15 96 254 356 Trade and other Receivables 29 45 735 1015 1222 Finance Costs -4-3 -20-88 -88 Other Assets 10 201 81 531 981 JV and Associates 0 0-2 30 74 Total Assets 489 687 6937 8016 9882 PBT 30 12 74 195 341 Trade and other Payables 29 33 1533 2030 2443 Tax -5-5 -30-70 -113 ST Borrowings 47 99 436 564 679 Net Profit 24 7 44 125 229 LT Borrowings 5 141 1264 1669 2009 Core Net Profit 24 9 44 125 229 Other Liabilities 87 87 546 473 473 Equity 321 326 3157 3282 4279 Cashflow Statement FY Oct (RM m) 13A 14A 15A 16E 17E Equity + Liability 489 687 6937 8016 9882 PBT 30 12 74 195 341 Key Ratios Deprn & Non Cash Adj 0 0 24 23 23 FY Oct (RM m) 13A 14A 15A 16E 17E Working Cap Chgs 12 15 224 174 193 Revenue Growth NA -5.1% 1053.7% 31.7% 20.4% Cash Tax Paid -5-21 -64-70 -113 Core Net Income Growth NA - 63.0% 392.1% 182.5% 83.1% Others 1-4 -61 0 0 GP Margin (%) 30.9% 28.5% 24.1% 26.0% 26.0% Operating CF 38 2 197 322 445 Core Net Profit Margin (%) 15.5% 6.1% 2.6% 5.5% 8.4% Additions to land held for prop dev -6-3 -1176-400 -400 Capex 0-4 -69-69 -69 Core ROE 7.6% 2.8% 1.4% 3.8% 5.3% Others 0-165 -2252-450 -450 Core ROA 5.0% 1.3% 0.6% 1.6% 2.3% Investing CF -6-172 -3498-919 -919 Net Gearing 0.08 0.61 0.37 0.57 0.36 Debt Raised/(Repaid) -11 205 914 532 455 PER (x) 13.3 44.8 48.1 25.6 16.4 Equity Raised/(Repaid) 0 0 2798 0 0 Core PER (x) 13.3 35.8 47.9 25.6 16.4 Div Paid -2-3 -12 0 0 Dividend Yield (%) 0.8 0.0 0.0 0.0 0.0 Financing CF -13 202 3701 532 455 Book Value (RM) 1.26 1.29 1.26 1.31 1.45 Change in Cash 19 32 400-65 -20 P/BV 1.01 0.99 1.01 0.97 0.88 Cash @ Beginning -8 11 43 443 378 Forex Diff on Open Bal 0 0 0 0 0 Key Drivers And Assumptions Cash @ End 11 43 443 378 358 FY Oct (RM m) 13A 14A 15A 16E 17E *FY13 financial year ends on September **FY14 financial year comprises 13 months as financial year end was changed to October Source: Company, MIDF Research Sales (RM m) NA 3186 3017 3500 4000 GP Margin 30.9% 28.5% 24.1% 26.0% 26.0% Interest cost 0.0% 5.7% 8.5% 5.2% 5.2% 6
MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - 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. 7