IS it time to re-look precision steel fabricator Ewein Bhd as a serious up-and-coming property developer?
With a flurry of property development announcements this year, the stock is now up some 40% on a year-to-date basis at its last price of 85 sen.
While the stock is still trading at a price earnings ratio (PER) of 32.88 times based on its historical earnings, this could change based on its new property contributions.
Ewein deputy chairman and group managing director Datuk Ewe Swee Kheng says the property business will contribute profit before tax and minority interest of RM50mil next year onwards.
“We are seriously diversifying our business. The property business will become our core business in a year’s time, and it will contribute over 80% of our revenue and profit after tax,” said Ewe.
Based on the company’s 210.9 million shares, Ewein’s 60% share in the RM800mil City of Dreams property joint venture will give the company a profit before tax of RM30mil, which would see the company’s PE drop to about 8 times by 2016.
Consortium Zenith BUCG Sdn Bhd owns the remaining 40% in the joint venture to build City of Dreams.
Last week, Ewein’s subsidiary, Ewein Zenith Sdn Bhd, was awarded Entry Point Project 10 (EPP 10) under the Economic Transformation Programme by the Domestic Trade, Cooperatives and Consumerism Ministry.
EPP 10 is for the development of a wellness resort city, which will be located on the City of Dreams development, which takes up some 50 acres in Bandar Tanjong Pinang.
This project is located on 110 acres of reclaimed land given to Consortium Zenith BUCG by the Penang government in return for building the RM6.3bil undersea tunnel and three road bypasses.
These projects will have a gross development value of RM25bil over the next 10 years.
“On top of this 50-acre project, we have also recently obtained the advertising permit and developer licence to build 572 condominium units for our City of Dreams project,” said Ewe.
From these developments, it is quite obvious that Ewein is switching its focus to property development while maintaining its lower margin precision steel metal fabrication business.
For the first quarter to March 31, 2015, net profit was up more than six-fold from RM93,000 to RM679,000, contributed mainly by the investment segment. Revenue increased a mere 0.4% to RM9.72mil.
For the full year to Dec 31, 2014, net profit was up 110.27% to RM3.46mil on the back of a 14.15% drop in revenue to RM44.63mil.
Ewein’s involvement in property investment began in 2011, when its wholly-owned subsidiary Ewein Land acquired Menara IJM Land in Penang for RM50mil.
The tapping into property development in 2014 was part of its business diversification strategies.
The current business of the company involves property development, property investment, fabrication of precision sheet metal, designing and fabrication of precision moulds, tools and dies, and precision injection moulding and product finishing.
Ewein first came into the spotlight back in 2013, when there was talk of it winning a portion of construction works for the RM6.3bil Penang Undersea Tunnel.
The consortium undertaking this project is made up of a joint venture between Zenith Construction and China Railway Construction Corp Ltd (CRCC) with the largest equity component of 70%, followed by Beijing Urban Construction Group (10%), Sri Tinggi Sdn Bhd (10%) and Juteras Sdn Bhd (10%).
The consortium was awarded the 6.5km Pesiaran Gurney-Bagan Ajam Tunnel, the 4.2km Pesiaran Gurney-Tun Dr Lim Chong Eu Expressway bypass, the 4.6km Tun Dr Lim Chong Eu Expressway-Bandar Baru Air Itam bypass and a four-lane 12km road linking Tanjung Bungah and Teluk Bahang
The initial award of the contract barely shook the market as no listed entity was involved.
This could, however, change with Ewein’s presence. This is because the deal also has an interesting real estate element.
Under the agreement, the state will pay for the cost of construction via 110 acres of reclaimed land in Penang.
Consortium Zenith BUCG is the joint venture partner for City of Dreams project, of which it owns 40% of the developer, Ewein Zenith Sdn Bhd.
The common figure between Consortium Zenith BUCG and Ewein is Datuk Zarul Ahmad Zulkifi, who is the chairman of Consortium Zenith BUCG and Ewein Zenith Sdn Bhd.
This land is located next to the vibrant Penang Gurney Drive, an area which has the highest property prices in the island state.
The sea-fronting development is expected to have a GDV of RM25bil over the next 10 years.
In April, Ewein obtained the approval from the Penang City Council for its City of Dreams project at Bandar Tanjung Pinang, which will have a GDV of RM800mil.
Ewe said that the proposed development is scheduled to begin in the second half of 2015.
He said the project was expected to contribute RM200mil in profit before tax and minority interests over four years, starting from the financial year 2016.
For now, the master plan of Bandar Tanjung Pinang will comprise of residential and commercial properties.
The proportion will depend on prevailing property conditions.
Meanwhile, the market has been speculating that Ewein is poised to bag the next parcel of land offered by the consortium for development purposes in Bandar Tanjung Pinang.
Ewein has been exploring such opportunities with the consortium for the parcel of land that is larger than City of Dreams.