PETALING JAYA: Eco World Development Group Bhd
’s (EcoWorld) outlook in the near term is supported by an upcoming capital distribution by 27%-owned associate, Eco World International Bhd (EWI), says UOB Kay Hian (UOBKH) Research.
EWI had received the approval for its proposed capital reduction in June.
“This paves the way for a special distribution of RM900mil, or 37.5 sen per share, to be paid by the end of 2023 (with the first tranche estimated at RM300mil). EWI achieved a net cash position of RM173mil (7.2 sen per share) by the end of the financial year 2022 (FY22), earlier than expected,” the research house said in a report yesterday.
UOBKH Research added the RM900mil special distribution will come from EWI’s sales target of RM1.4bil for FY23, mainly from sales of existing inventory.
“We believe this special distribution aims to maintain the appeal of EWI’s stock and promote shareholder loyalty, considering the challenging operating environment in its key London market,” it said.
EWI has an inventory and unlaunched projects with a gross development value (GDV) of about RM9bil. This includes RM1.8bil in unsold completed inventory and six unlaunched projects, mainly in the United Kingdom.
“The recognition of this GDV is expected to span at least six years, assuming a consistent annual sales target of RM1.4bil, before considering any potential new land acquisitions,” UOBKH Research said.
Out of the RM900mil capital distribution, EcoWorld will be entitled to receive RM243mil (8.2 sen a share).
UOBKH Research added EcoWorld intends to utilise the proceeds for land banking activities in the Klang Valley and Johor, with a size ranging from 200 to 300 acres, for township and industrial development projects.
Following the capital distribution by EWI, UOBKH Research projects EcoWorld’s net gearing to decrease to 0.26 times from 0.31 times in the second quarter of FY23.
This would mean the developer will have a debt headroom of RM1.1bil for future landbanking activities before reaching its internal net gearing cap of 50%.
“We estimate that RM1.1bil would add another 2,000 acres of land to its portfolio. Currently EcoWorld has more than 3,000 acres of remaining landbank with a remaining GDV of RM54bil,” the research house said.
UOBKH Research noted EcoWorld’s sales momentum is strong, as the group has secured RM2.4bil in the seven-month period of FY23, which makes up 68.5% of EcoWorld’s FY23 sales target of RM3.5bil.
“This was mainly attributable to strong landed residential (41% of total sales) and industrial demand (35% of total sales),” the research house said. It has maintained a “buy” call on EcoWorld with a target price of RM1.02 a share.
