Maze garden at Eco Botanic
KUALA LUMPUR: Eco World’s proposal to undertake a placement exercise of up to 591 million new shares sends a strong signal to the market about the major shareholders’ confidence in the company’s future performance, said CIMB Research.
The placement exercise represents 25% of the existing share base of the company. Its major shareholders, Liew Tian Xiong and Sinarmas Harta, intend to subscribe for 449 million, or 76% of the placement shares.
This will raise their direct shareholdings in the company from 43.3% to 49.8% post-placement.
The price of these shares is fixed at RM1.30. The remaining shares are intended to be placed out to other investors.
Assuming all the placement shares are issued at RM1.30 per share, Eco World will receive RM768mil in proceeds, which will be mainly used for land acquisitions, as well as to part finance Eco World’s subscription in Eco World International’s (EWI) shares pursuant to EWI’s IPO.
Eco World’s net gearing was high, at 47% as at February 2016. While CIMB does not expect the placement to reduce its net borrowings since the proceeds will be mainly used for acquisitions, it will nevertheless raise Eco World’s shareholders’ equity by about 24%.
This could reduce its net gearing level to about 38%. CIMB believes the placement will have limited impact on Eco World’s near-term earnings as the earlier acquisitions are in their early stages of development.
While there is no dilution to the existing shareholders as it is higher than Eco World’s current share price, CIMB said it is dilutive to its previous target price of RM 2.05 and RNAV per share of RM2.58.
It cut its target price to RM1.90, based on a 20% discount to a lower RNAV per share of RM2.37.
It added on Friday it believes any share price weakness following the announcement is a buying opportunity for investors. “Eco World remains our top sector pick as it is the sector’s bell-weather. Potentially stronger sales and earnings in the coming quarters are the key re-rating catalysts,” it said.
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