Eco World Development Group Bhd

(Jan 21, RM 2.15)

Maintain add with a target price of RM2.94: Eco World Development Group Bhd shares went ex for the one-into-two share split on Jan 21, which reduced the share price, target price and earnings per share by half.

While the share split has no impact on the fundamentals of the group, it is welcome as it lowers the entry price of the stock and could help boost liquidity.

The next milestone is the upcoming acquisition of 3,000 acres (1,214ha) of land bank from Eco World Sdn Bhd (EWSB) for RM3.8 billion. The proposed one – for – two rights issue and 20% share placement will take place in the coming months.

We make no changes to our target basis of a 20% discount to revalued net asset value (RNAV) and “add” recommendation as Eco World remains one of our top picks in the sector. Potential re-rating catalysts include the ongoing restructuring exercise, better than expected new sales and continuous land banking.

The share price of Eco World went ex for the one-into-two share split, which reduces the par value of the stock to 50 sen and increases the paid-up capital to 506.6 million shares.

The next milestone will be the issuance of 806.85 million new shares at a subscription price of RM 1.70 each for the acquisition of 3,000 acres of land bank held by EWSB.

We view positively the share split as it will boost liquidity of the relatively thinly traded stock. The imminent completion of the acquisition of EWSB’s land bank will be very positive as it consolidates all the Malaysian land bank of the Eco World group under one umbrella.

The upcoming rights issue (targeted to raise RM788 million) and 20% private placement will help pare down gearing and strengthen the group’s balance sheet.

The rights issue with free warrants is expected to go ex in mid-March while the proposed placement is targeted for the second quarter of 2015 (2Q15).

Upon the full completion of all the exercises, the paid up capital of the group is expected to increase to 2.36 billion shares.

Investors should continue accumulating Eco World as the group is one of two developers that bucked the softening sales trend in 2014.

For Eco World’s maiden year, the group chalked up RM3.2 billion in new sales, 60% above its target. This is very impressive considering the sales came largely from only six projects — two in the Klang Valley (Eco Sky and Eco Majestic) and four in Johor (Eco Botanic, Eco Tropics, Eco Spring and Eco Business Park 1).

Eco World is targeting to achieve RM7 billion in new sales over the next two years. — CIMB Investment Bank Bhd, Jan 21