June 14, 2017 Eco World International (ECWI MK) HOLD Share Price MYR 1.03 Growing horizons 12m Price Target MYR 1.12 (+9%) Company Description Internationalizing the ‘ECOWORLD’ brandname A property developer with property projects in Eco World International (EWI) is the first and only Malaysia listed London and Australia. developer with pure overseas exposure in the UK and Australia property markets. Earnings growth would be strong in FY18-FY20 with the staggered contributions from its London and Sydney/Melbourne projects. We initiate coverage with a HOLD and MYR1.12 RNAV-TP (0.75x P/RNAV). Statistics Shariah status Yes Well-located projects to sustain earnings visibility 52w high/low (MYR) na/na 3m avg turnover (USDm) 2.3 All EWI’s projects in UK and Australia are well connected with close Free float (%) 57.7 proximity to existing/future train/tram lines. Since most of the projects Issued shares (m) 2,400 Real Estate are strategically located in new growth/mature areas catering for Market capitalisation MYR2.5B different market segments, pre-sales rates have been encouraging at 68- USD580M 83% since their launches in 2015 (except for Embassy Gardens Phase 2’s Major shareholders: 37%). Total pre-sales were MYR6.4b (87% GBP, 13% AUD) at end-Jan 2017, Gll Ewi Hk Ltd. 27.0% providing earnings visibility over the medium term. LIEW KEE SIN 10.3% Syabas Tropikal Sdn. Bhd. 3.3% Price Performance A new name in the hands of an experienced team EWI’s management is led by a team which includes former SP Setia (SPSB 1.30 105 Malaysia MK; BUY) directors and executives with considerable experiences in UK 1.25 100 and Australia property markets. Certain members of the team were 1.20 95 previously involved in redeveloping the iconic Battersea Power Station project in London (Phase 1 & 2). EWI’s partnership with GuocoLand will 1.15 90 allow EWI to tap onto GuocoLand’s vast experiences in property 1.10 85 development and investments in China, Singapore, Vietnam and UK. 1.05 80 1.00 75 Initiate coverage with a HOLD, MYR1.12 TP Apr-17 Apr-17 May-17 May-17 May-17 Jun-17 EWI is the only Malaysia listed developer offering a pure exposure to the Eco World Int'l - (LHS, MYR) Eco World Int'l / Kuala Lumpur Composite Index - (RHS, %) UK and Australia property markets, hence, it has no direct valuation comparable in Malaysia. That said, EWI has similar geographical exposure -1M -3M -12M as SPSB’s overseas operations, hence, we have benchmarked EWI against Absolute (%) (10) na na SPSB. We value EWI at MYR1.12 based on 0.75x P/RNAV (MYR1.49 Relative to index (%) (10) na na RNAV/sh). Post-Yarra One acquisition, EWI remains in net cash position. Source: FactSet FYE Oct (MYR m) FY16A FY17E FY18E FY19E FY20E Revenue 1 0 1 1 1,694 EBITDA (38) (63) (61) (62) 381 Core net profit (220) (104) 226 437 564 Core FDEPS (sen) (89.3) (4.3) 9.4 18.2 23.5 Core FDEPS growth(%) nm nm nm 93.6 29.1 Net DPS (sen) 0.0 0.0 0.0 4.6 5.9 Core FD P/E (x) nm nm 10.9 5.7 4.4 P/BV (x) 2.4 0.8 0.9 0.8 0.7 Net dividend yield (%) 0.0 0.0 0.0 4.4 5.7 ROAA (%) (35.4) (4.4) 6.3 11.3 13.3 EV/EBITDA (x) na nm nm nm 0.8 Net gearing (%) (incl perps) nm net cash net cash net cash net cash Wong Wei Sum, CFA Syairah Malek [email protected] [email protected] (603) 2297 8679 (603) 2297 8641 THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH (PTE) LTD PP16832/01/2013 (031128) SEE PAGE 48 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Eco World International Value Proposition Price Drivers . A young real estate group run by experienced captains. EWI’s buyers profile Eco World Development Group (ECW MK; BUY), GuocoLand 1% Ltd (GUOL SP; Not Rated) hold 27% stake each in EWI. 4% 8% Indonesia 5% . 87% of total estimated GDV is derived from the matured 18% Australia London property market and the remaining is from 49% Others Australia (Sydney and Melbourne). 17% Middle East & North . EWI is in its infancy stage. All its London and Sydney Africa 2% 1 projects were launched in 2015 and profits can only be Singapore recognised between FY18 and FY21. 22% 55% Hong Kong and China . EWI adopts a fast turnaround strategy and will continue to focus on the mature property markets – UK and Australia. 19% Malaysia UK . ROEs should improve in FY18-20 on the completion of the Source:London Company, projects Maybank Kim EngSydney project construction for all London and Sydney projects which are targeted between 2018 and 2021. 1. According to Savills Research forecasts, there is a shortfall of around 26,000 homes (2016-2020) against the GDV breakdown by project – MYR13.6b Further Alterations to the London Plan’s housing target of Yarra West One 62,000 homes p.a. in London from 2015-2025. The supply Village 5% 7% shortfall will continue in all mainstream market segments below GBP1,000 psf while supply is increasing towards London City 2 the top of the market (>GBP1,000 psf). 28% 2. For Sydney (New South Wales), future supply is now Wardian 23% above the long-term average but Savills Research believes the amount of pent up demand is significant such that excess supply can be absorbed comfortably for Embassy 2 a number of years subject to pricing and locations. 37% Source: Company Financial Metrics Swing Factors . EWI is an RNAV play with lumpy earnings trend as projects Upside earnings can only be recognised upon completion. Post-the acquisition of the Melbourne land (Yarra One), EWI is . Potential RNAV-accretive land acquisitions. expected to stay in a net cash position. Weakening in GBP or AUD could encourage foreign . We do not expect any dividend payment before FY19 as property buying in these countries. cash will likely be retained as working capital for the construction of its UK and Australia projects. Downside Sales forecasts from 2017-2020 1,800 . Uncertainties from Brexit could hit buying sentiment and 1,600 weaken the property demand in London as potential 1,400 buyers could adopt a wait-and-see approach until there is 1,200 more certainty in the market. 1,000 800 . In our view, such uncertainties could also lead to the MYR m MYR 600 fluctuation in GBP, affecting sentiment. 400 . Risks could come from further policy tightening measures 200 by the UK and Australia authorities. - 2017 2018 2019 2020 London 1,217 1444 1655 381 . Competition from nearby property projects. Sydney 169 222 168 176 Source: Company [email protected] June 14, 2017 2 Eco World International Contents Page Merit 1: Right products at strategic locations 4 Merit 2: Strategies bearing fruits 8 Merit 3: Veteran management team 13 Merit 4: Two giants go hand in hand 15 Merit 5: The “Eco World” connection 16 Merit 6: Ample headroom to grow 18 Risks and concerns 19 Financials 20 Valuations 22 Our RNAV estimates 23 Sensitivity analysis 24 Financial tables 26 Property profiles 28 Appendix 1 – Corporate Structure 38 Appendix 2 – Board of Directors and Key Management 39 Appendix 3 – Key achievements, milestones and awards 44 Appendix 4 – Location map for EWI’s London and Australia projects 45 June 14, 2017 3 Eco World International Merit 1: Right products at strategic locations Internationalizing the ‘ECOWORLD’ brandname EWI is the first and only Malaysia listed developer providing a pure exposure to the UK and Australia property markets. It has a total landbank of approximately 14.7 acres (including a recent land purchase in Melbourne post-IPO listing) with a total carrying estimated GDV of MYR13.6b (based on MYR5.425/GBP and MYR3.231/AUD). A big chunk of this MYR13.6b GDV is derived from its three London projects (87%) namely London City Island Phase 2 (LCI 2), Embassy Gardens Phase 2 (EG 2), and Wardian London (WL) while the remaining is from its Australia projects - West Village (WV; in Sydney) and Yarra One (YO; in Melbourne). Its London projects are undertaken via joint venture with the Ballymore Group where EWI takes on the larger 75% stake. Its Sydney project is 100%-owned while its Melbourne project is 80%-owned (the remaining 20% is held by Salcon Berhad [SALC MK; Not Rated]). GDV breakdown, MYR13.6b – 87% London, 13% Australia Landbank breakdown, 14.7 acres – 89% London, 11% Australia Yarra West Yarra One West One Village 3% Village 5% 8% 7% London Wardian City 2 28% 9% London City 2 Wardian 23% 41% Embassy Embassy 2 2 37% 39% Source: Company, Maybank KE (chart) Source: Company, Maybank KE (chart) Note: Post-IPO listing, EWI had entered into a conditional share sale and purchase agreement with Salcon Development, a 100%-subsidiary of Salcon Bhd to acquire a 80% stake in Salcon Development PTY LTD (PropCo, which owns a 0.5-acre freehold land in South Yarra, Melbourne) for AUD120,000 cash. EWI will also repay a sum (AUD14.1m) equivalent to 80% of the total advances owing by PropCo to Salcon Development. The total purchase is around AUD41-45m including the land cost, we understand. EWI will develop the 0.5-acre land into a residential-led mixed use development (called Yarra One) worth AUD218m (or MYR704m) in GDV. Yarra One was launched in May 2017 and will be completed by 2H20.