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9th February 2015

Pudu jail site project a boon for Eco World

PETALING JAYA: Analysts are generally positive on property developer Eco World Development Group Bhd’s participation in the redevelopment of the former Pudu jail site into the multi-billion-ringgit Bukit Bintang City Centre (BBCC), citing low capital investment in the project.

According to UOB Kay Hian, Eco World will only be required to fork out a total of RM115mil, which include its 40% stake payment of RM100mil and RM15mil as an advance for initial costs to kick-start the project.

“Assuming a decent pre-tax margin of 22% and a take-up rate of 80% over a development period of eight years, the project could potentially enhance its revised net asset valuation (RNAV) per share by 16 sen on an ex-all basis,” it said.

The brokerage said that in terms of location, the land was at the crossroads of Jalan Pudu and Jalan Hang Tuah within close proximity to some of the most popular retail centres and established hotels in Kuala Lumpur.

“Accessibility via public transportation to the land is also well-served as it is located adjacent to the existing public transportation hub such as the Hang Tuah LRT station and monorail station which will be integrated with the proposed development site to create easy accessibility to the public.

“In addition, a proposed MRT station to serve other parts of the Klang Valley is being built about 500 metres away,” said UOB Hay Kian in a report yesterday maintaining a long-term “buy” call with a target price of RM2.80 for Eco World.

Eco World had entered into a subscription and shareholders’ agreement with UDA Holdings Bhd, the Employees Provident Fund Board (EPF) and BBCC Development Sdn Bhd, whereby EcoWorld, UDA and EPF agreed to invest and fund BBCC Development as a special purpose vehicle (SPV) to undertake the proposed joint development in accordance with the terms of the shareholders’ agreement.

EcoWorld, UDA and EPF would hold 40%, 40% and 20% respectively in the SPV.

Meanwhile, AllianceDBS Research said that as the consortium would acquire the prime land’s development rights for over RM1.013bil or at RM1,200 per sq ft representing 13% of BBCC’s gross development value (GDV), it was quite decent.

“The estimated RM8bil in GDV that implies average selling price of around RM1,700 per sq ft, assuming a 70% efficiency and eight times plot ratio, may offer further upside given the long development period.

“We also understand that Eco World will rope in Mitsui Fudosan to jointly develop the shopping and retail components,” it said.

Maybank Investment Bank Research (Maybank IB) is neutral on the development due to upcoming stiff competition from other mega-projects nearby.

“While the location is strategic, it will face stiff competition from nearby projects like the Tun Razak Exchange. Also, it may not be able to attract the ‘superstitious’ property buyers or investors,” it added.

But Maybank IB foresaw potential en bloc sales of the mall, office and hotel towers to UDA as part payment for the project land while the joint venture with Mitsui Fudosan for the mall and retail development should lower the overall sales risk and upfront costs.

“Assuming a pre-tax margin of 15% and 10-year development period, BBCC could enhance our basic RNAV per share estimate by 27 sen to RM2.99.”

Maybank IB, however, lowered Eco World’s financial year 2016 and 2017 earnings forecasts by 3% to 2% due to higher debts to be assumed.

“This latest JV with the EPF shows a strong relationship between Eco World and EPF that could be a prelude to more land deals in the future, including the Rubber Research Institute of Malaysia land in Sungai Buloh,” it said.


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