EcoWorld Malaysia in positive territory

MIDF Research said the land sale is expected to support development of business parks of EcoWorld Malaysia in Johor.

PETALING JAYA: Eco World Development Group Bhd’s (EcoWorld Malaysia) land disposal in Johor is positive and should allow the property development group to record gains from the exercise, says MIDF Research.

On Monday, EcoWorld Malaysia announced that its wholly-owned subsidiary, Eco Business Park 6 Sdn Bhd had entered into a conditional sale and purchase agreement with Microsoft Payments (M) Sdn Bhd for the disposal of industrial land measuring 123.1acres located in Kulai, Iskandar Malaysia, for a cash consideration of RM402.3mil.

The land is part of the 403.78 acres landbank EcoWorld Malaysia had acquired from IOI Properties Group Bhd for RM211mil in January this year. This translates into purchase consideration of RM12 per sq ft (psf).MIDF Research said it views the land disposal positively as it unlocks the value of EcoWorld Malaysia’s landbank.

The 123.1 acres land disposal to Microsoft Payments came at a price of RM75 psf, which should allow EcoWorld Malaysia to record gains from the disposal.

“Nevertheless, we gather that EcoWorld Malaysia would have to incur costs to build infrastructure, land conversion premium and earthworks,” the research firm added in a report.

According to MIDF Research, the land sale is expected to support development of business parks of EcoWorld Malaysia in Johor as Microsoft Payments has proposed to develop data centres on the land.

“The setting up of data centres on the land is expected to increase demand for industrial products at EcoWorld Malaysia’s business parks in Johor.

“Note that the group is expanding its industrial property segment with sales from its Eco business parks contributing 24% to total new sales in the first four months of financial year 2024.”

Additionally, the land disposal is expected to improve the balance sheet of the company with net gearing estimated to fall to slightly above 0.2 times from 0.28 times as of the first quarter of 2024.

In view of better prospects for its business parks in Johor, MIDF Research has raised EcoWorld Malaysia’s target price to RM1.63 from RM1.51.

“We opine that the valuation of EcoWorld Malaysia is fair at this level, trading at slightly above its latest net tangible assets of RM1.63 per share. Hence, we maintain our “neutral” call on EcoWorld Malaysia,” added MIDF.

The land disposal is expected to be completed in the second half of 2025.

EcoWorld Malaysia said part of the proceeds will be used for the development of the land and to defray associated expenses for the proposed land sale, as well as to repay the bank loan for the land. The balance of the proceeds will be used as working capital for the group.

In recent weeks, several companies with landbank in Johor have sold plots of their land for data centre development as the southern state shapes up to be the largest data centre market in Malaysia.

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