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Thursday, 4 May 2017

(The Star) CIMB Research starts coverage on EWI with ‘hold’ call

KUALA LUMPUR: CIMB Equities Research has initiated coverage on Eco World International (EWI) with a “hold” call and target price of RM1.23, based on parity to its realised net asset value (RNAV).

It said yesterday while many big Malaysia listed developers trade at 20%-40% discounts to their RNAVs, it believed EWI deserved to trade at parity as EWI’s existing projects had a shorter development period compared with those of Malaysian developers.

“The key upside risk is more value-accretive acquisitions while the key downside risk is deterioration of property market conditions in the UK and Australia,” it said.

EWI’s new property sales surpassed RM6.5bil in May 2015 to January 2017 through its three projects in London and one project in Sydney.

“We project EWI to report an after-tax loss of RM132mil in FY17F but turn profitable from FY18F onwards,” it said.

Incorporated in 2013, EWI currently has three ongoing development projects in London, one in Sydney and a site in Melbourne that is being acquired.

CIMB Research said EWI’s three projects in London are held through a 75%-owned joint venture (JV). These projects have an estimated gross development value (GDV) of £2.2bil (RM12bil).

In Sydney, EWI has one project, held through its unit. This project’s GDV is estimated at A$315mil (RM1bil).

EWI had its first launch in May 2015. As at January 2017, it had already sold properties worth £1.023bil in London and A$249mil in Sydney. These translate into RM6.5bil based on the average exchange rates of £1:RM5.50 and A$1:RM3.35.

The projects in London and Sydney were acquired by EWI before its listing on April 3,

2017. On April 10, 2017, EWI announced the acquisition of an 80% stake in a development company that has a 0.5-acre land on the fringes of the Melbourne CBD.

The company estimates that the project has a GDV of A$218mil (RM730mil). The project is targeted to be launched in 2QFY17.

Apart from completing its current projects, EWI wants to acquire more projects.

“We believe the undersupply of mainstream market properties in London provides opportunities for EWI to grow while the rising number of wealthy individuals creates demand for property investments around the world.

“We believe that EWI is well positioned to tap these opportunities as it is led by a highly-experienced management team.

“We expect EWI’s projects to be completed in 2018-2021F. As it will only recognise the revenue upon handover of its units, we project EWI to incur losses in FY17F due to administrative and sales expenses before it turns profitable from FY18F onwards.

“We expect EWI’s 75%-owned JV in the UK to be its sole earnings contributor in FY18-19F.