KUALA LUMPUR: Kenanga Investment Research has kept its Outperform call on Eco World Bhd with a target price of RM2.05, it said in a note on Wednesday.
The research house said Eco World has received an award from Penang Development Corporation (PDC) to develop a 449.6ac parcel leasehold land in Bandar Cassia, Batu Kawan, Penang. The land is located close to the Second Penang Bridge and was acquired for a total consideration of RM796.3mil.
"We were not surprised by the acquisition as both the media and our recent IC report have speculated on this news," it noted.
Kenanga said the rationale for this acquisition is geographical diversification and to expand Eco World's exposure to Penang.
The land has a potential project GDV of RM10.0bil and will likely be a mixed development.
Significant earnings impact will likely be from FY18E onwards as expected launch is in FY17.
"The project will increase Eco World's remaining GDV by 19.5% to RM61.2bil. Penang will also make up a bigger composition of group’s GDV at 18.7%.
"We are neutral for the near-term outlook but positive in the longer run. Land price is decent while repayment isprogressive. However, funding is crucial as Eco World’s net gearing is high at 0.57x-0.65x while earnings will only be felt from FY18 onwards.
"Based on the progressive payment schedule, we expect FY15-16E net gearings to increase to 0.59x-0.67x. If the group continues on this aggressive landbanking path, we reckon it will increase the possibility of a cash call next year," it noted.
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