The proposed Eco Marine project which included a golf course in Batu Kawan, Penang.
KUALA LUMPUR: Shares of Eco World Bhd Development Bhd held steady on Thursday despite news about the cancellation of the land purchase in Batu Kawan, Penang for its RM10bil Eco Marina.
CIMB Equities Research said Eco World could then channel its financial resources to develop other Klang Valley projects that target the masses, rather than Eco Marina which targets the affluent.
“This could also help the group to maintain its balance sheet strength and better weather the current property downturn,” it said.
At the close of morning trade, Eco World was unchanged at RM1.28, with analysts keeping it as an Add due to the potential upside of the share price.
CIMB Research described the move by Eco World and Penang Development Corp (PDC) to rescind the letter of award, which the former received in April 2015 from PDC, as a negative surprise as the remaining gross development value (GDV) in Penang will drop 91% to RM1bil.
However, the group's total remaining GDV will drop by only 13% to RM65bil.
“We maintain EPS but cut the taret price, based on 20% discount to RNAV, to RM1.70 after removing the surplus value of Eco Marina from our RNAV computation.
“Eco World remains an Add as we believe it has potential share price upside of 33%. Key potential re-rating catalyst is stronger sales in 2HFY16,” it it said.
Recall that in April 2015, Eco World received a letter of award from PDC notifying that the group’s proposal to acquire 450-acres of land on Penang mainland for RM796mil (US$194mil) was accepted. The land was earmarked for the development of Eco Marina, which included a 150-acre golf course and 300 acres of mixed development.
Eco World announced to Bursa Malaysia on Wednesday it had agreed with the PDC to rescind the LOA. The property developer said feasibility studies revealed that the acreage required for the golf course was significantly higher than anticipated, which impairs the viability of the entire development.
“The rescission of the LOA has no impact on Eco World’s financials as the deposit paid for the acquisition will be refunded. We also maintain our EPS forecasts as our earnings projections do not reflect potential earnings contributions from the Eco Marina,” it said.
CIMB Research said of all the land acquisition proposals announced by Eco World, only the proposed land acquisitions for Eco Garden & Eco Business Park V have not been completed. These developments, located in Kuala Selangor, have a combined GDV of RM15bil and their surplus value accounts for 14% of Eco World’s total RNAV.
“Cancellation of land acquisition for these two projects, though unlikely, poses a downside risk to our RNAV and target price,” it said.
