TA Securities: EWI share price fair at RM1.34

PETALING JAYA: TA Securities considers property developer Eco World International Bhd’s (EWI) share price as “fair value” at RM1.34 apiece on the company’s favourable prospects driven by a strong management team and established branding.

EWI has launched its prospectus en route to a listing early next month. The retail offering has been priced at RM1.20 per share with the institutional price to be determined via a book-building exercise.

EWI, set to be Malaysia’s biggest listing this year, will see an initial public offering (IPO) of 2.2 billion new shares, which make up 89.7% of the enlarged issued and paid-up capital of the company.

“All in, the IPO is expected to raise gross proceeds of up to around RM2.6bil.

“EWI is poised to remain in the red in the financial year ending Oct 31, 2017, due to a mismatch between the initial expenses incurred and revenue recognition for projects in the United Kingdom, which are based on the completion method.

“Nevertheless, we expect EWI to enjoy bumper earnings in 2018 and 2019, driven by lumpy revenue recognition of its London projects.

“We have arrived at a fair value of RM1.34 per share for EWI, based on 1.1 times the 2018 price-to-book (P/B) value after ascribing a 22% premium to the Malaysian developers’ average P/B of 0.9 times.

“We think this is justifiable, considering EWI’s favourable prospect driven by a strong management team and established branding,” said TA Securities in a report.

It was reported that the property developer had secured two of the country’s biggest institutional funds – the Employees Provident Fund and Permodalan Nasional Bhd – as cornerstone investors.

EWI owns a 75% stake in three ongoing property development projects in London and a 100% stake in an ongoing property development project in west Sydney, Australia.

The combined gross development value of these projects is estimated at RM13bil.

TA Securities said that out of the RM2.6bil proceeds, 52.9% or RM1.4bil would be used for debt repayment within six months.

“The remaining RM1.1bil or 43.6% will be earmarked for working capital to fund EWI’s existing four projects, namely, Wardian, Embassy Gardens and London City Island in London, as well as West Village in Parramatta, Sydney,” it said.

Meanwhile, EWI posted a narrower loss of RM6.06mil for the first quarter ended Jan 31 compared with the same quarter a year ago when it posted a loss of RM57.80mil mainly due to unrealised foreign-exchange differences as a result of the appreciation of the pound sterling.

The company said in a stock exchange filing that revenue was higher in the quarter under review on fees for marketing services rendered by a subsidiary for a joint venture in respect of sales of the second phase of the London City Island and Wardian London projects.