By Khairie Hisyam
Former SP Setia chief of nearly 18 years Liew Kee Sin has been appointed to the board of Eco World Development Holdings Berhad today as a non-executive director, ending months of speculated links between him and the fast-rising developer.
In a regulatory filing, Eco World indicated that Liew does not have any stake in the developer apart from his son Liew Tian Xiong’s shareholding of 88.78 million shares.
Liew, who helmed SP Setia for nearly 18 years since May 1996, left the developer last Wednesday after growing the company into arguably Malaysia’s foremost property brand.
However Liew, who tendered his resignation from SP Setia’s hotseat in January this year, remains chairman of Battersea Project Holding Company Limited and managing director of Qinzhou Development (Malaysia) Consortium Sdn Bhd, two of SP Setia’s projects, until September 2015 upon request of SP Setia’s chairman Zaki Azmi.
“The board is thankful that (Liew) has agreed and that Teow has also agreed to remain as chairman of Battersea Power Station Development Company Limited until September 2015 to help ensure the smooth and successful implementation of these internationally prominent projects,” said Zaki in January.
Two weeks ago SP Setia homebuyers received a farewell message from Liew to mark his exit in the same week he sold off his last block of shares in SP Setia amounting to 67.79 milion shares for about RM267 million.
Liew Kee Sin
“As I leave SP Setia in (Voon’s) good and capable hands I do so with the assurance that the group has never been in a more solid position, and we have all of you to thank for this,” said Liew in the message. “The amazing milestones that we have achieved over the years would not have been possible without your continuous support and I sincerely hope this will continue with Voon at the helm.”
In Eco World’s boardroom, Liew is set to join his son Tian Xiong, an executive director of the developer whose 35.05% stake acquisition last September was financed by Liew senior and wife, according to a regulatory filing.
However Tian Xiong’s stake is set to shrink to 11.27% after the corporate exercises announced by Eco World on April 25, 2014 completes.
The exercises involve assets injection, shares and rights issue as well as a coming private placement, with Eco World’s parent company Eco World Development Sdn Bhd injecting assets with some RM30 billion in gross development value (GDV) into the company, more than tripling Eco World’s land bank from 1,326 acres to 4,433 acres and boosting the group’s current GDV from RM13.49 billion to RM43.53 billion.
As part of the injection, EWDSB’s shareholders — Eco World Development Holdings Sdn Bhd (Eco World Holdings) and Sinarmas Harta, which own 50% each — will subscribe to 806.85 million new Eco World shares worth RM1.37 billion to partially fund the acquisition by Eco World.
As at end-March, the directors of EWDSB are non-executive chairman Abdul Rashid Abdul Manaf, non-executive deputy chairman Leong Kok Wah and executive director Liew Tian Xiong.
KiniBiz previously examined Eco World’s rapid emergence in a three-part series here.
At 12.30pm, Eco World was traded 11 sen lower at RM4.57.
Earnings growth to pick up from late FY15
While fast-rising Eco World Development Holdings Berhad is set to force its way into the top tier of the property scene, its earnings will only see more significant growth from late FY15 onwards, said RHB Research.
In a note today, the research house said despite Eco World’s new sales targets of RM2 billion and RM3 billion respectively for FY14 and FY15 following the assets injection exercise announced on April 25, 2014, the developer only has two ongoing projects at present that contributes to FY14 earnings.
For FY14, RHB forecasts a turnover of RM162 million with a reported net profit of RM25 million for Eco World while expecting the figures to rise to RM1.5 billion in turnover and RM221 million in reported net profit for FY15.
On an ex-all basis, RHB Research values Eco World at RM2.71 per share though the research house does not rate the developer. In comparison Kenanga Research, in an earlier note, set a fair value target of RM2.27.
“Currently, only two ongoing developments out of three projects in Eco World are contributing to FY14 earnings, namely Saujana Glenmarie and EcoTropics (Kota Masai land),” said RHB. “Post-exercise, FY15 earnings will see contributions from most of the new projects injected.”
Following the injection, Eco World’s pipeline will grow from three to 11 projects, all of which are planned for launches in quick succession within the next one to two years, said Eco World.
“Market expectations on Eco World is very high in terms of land bank, sales and earnings growth,” said RHB. “Of course, all these come at a cost, which is the dilution impact as a result of the ongoing asset injection/fund-raising exercise.”
Prior to the injection, Eco World — formerly known as Focal Aims Holdings Berhad prior to the reverse take-over last September by former SP Setia bigwigs — only ongoing project was the 991.6-acre Kota Masai township in Iskandar Malaysia.
The company recently revised the township’s development masterplan to create two separate developments. As a result it now has a township component, Eco Tropics, as well as a green business park, Eco Business Park III.
To-date, Eco World has launched EcoSky in Klang Valley and EcoBotanic in Iskandar Malaysia, gaining RM1.13 billion in sales as at end-March.
These will be followed shortly by EcoMajestic in the Klang Valley, EcoSpring and Eco Business Park I in Iskandar Malaysia and Eco Terraces in Penang which will be launched soon, said Chang.
“With another five projects still to be unveiled, namely EcoSanctuary in the Klang Valley, the newly revamped EcoTropics, Eco Business Park II and Eco Business Park III in Iskandar, as well as EcoMeadows on mainland Penang, the group will be kept very busy over the next few years,” said Eco World president and chief executive officer Chang Khim Wah.
In its note, RHB noted that Eco World will see a 13-month period for FY14 after changing its financial year-end from September to October and its earnings forecast is based on a share base of 2.36 billion, excluding the potential dilution from warrants.
Additionally, when the exercises are completed, RHB expects Eco World’s price-earnings ratio (PE) to be above 20 times.
“A meaningful PE compression will likely come only in FY16 as earnings growth picks up more materially,” added the research houses.
‘A new SP Setia in the making’
Fast-rising Eco World Development Holdings Berhad is a brand new SP Setia in the making, says RHB Research
“Eco World is full of SP Setia’s DNA,” said RHB. “The company currently has about 350 staff in total, and we believe >80% of them are formerly from SP Setia.”
“Therefore, Eco World’s execution track record, branding and publicity should put the company at the top of the league in the property scene, although its market cap at about RM5 billion post-exercise would not be among the top three largest.”
With Eco World’s new landbank profile following the assets injection, RHB expects Eco World to pursue more land bank in Penang and the Klang Valley to give balance to its large exposure to Iskandar Malaysia, which the research house feels is a challenging market.
This echoes Kenanga Research’s expectations of an aggressive land-banking expansion after the exercises complete, citing Eco World’s strong cash position once the dust settles.
“Post the corporate exercises (before warrants conversion), the group will be in a net cash position of 0.25x with a cash pile of (around) RM1 billion,” said Kenanga in a note following the April 25 announcement.
“Assuming that EcoWorld can gear up to 0.3x net gearing level, which is extremely comfortable for most developers, the group can afford to borrow another RM1.7 billion for land-banking,” added Kenanga.
The research house added that assuming land cost is around 12% of GDV, Eco World may well end up with another RM14 billion in GDV in this scenario. “We do expect the group to continue land banking aggressively.”
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