Eco World International (EWI) IPO will raise RM2.58b with market capitalisation of RM2.88b. Key shareholders are Tan Sri Liew (10.3%), ECOWLD (27.0%) and GUOCOL (27.0%). Total GDV is RM13.0b, which are mainly in London (92%) and Australia (8%) with strong pre-sales of RM6.5b. FY18 will see maiden bullet contributions. Expect strong land banking news on the back of its net cash position post IPO. SUBSCRIBE with TP of RM1.33.

IPO to raise RM2.58b based on 2.15b shares at retail IPO price of RM1.20 out of the enlarged share base of 2.40b shares, implying a market capitalization of RM2.88b, which we deem as large cap developer. The IPO comes with a bonus warrant issue of up to 960.0m. Utilization of proceeds is mainly for debt repayment, working capital and future land acquisitions. Major shareholders include Tan Sri Dato’ Liew Kee Sin (10.3%), ECOWLD (27.0%) and GUOCOL (27.0%) which have lock-up periods.

Familiar DNA with strong backers. Leading the management team are Tan Sri Dato’ Liew Kee Sin (Executive Vice Chairman) and Dato’ Teow Leong Seng (ED/President & CEO) who are known for previously managing SPSETIA. GUOCOL is part of Hong Leong Group and a strong regional player with established presence in London. Under the shareholder’s agreement, GUOCOL has priority to be a project partner if EWI requires a partner to undertake any developments in China, Singapore and UK. EWI projects will be marketed under the “ECOWORLD” brand.

Total GDV of RM13.0b of which 92% are in London, which are a 75:25 JV between EWI and Ballymore while the remainder is in Australia. Their projects have achieved rapid take-ups backed by strong local buyers. The London and Australia projects have secured 60% and 80% pre-sales (31/1/16) since the launch in 2015 amounting to RM6.5b. The bulk of buyers are largely locally driven with London seeing 54% local buyers while Australia sees 49% which indicates strong sales sustainability.

Expect maiden bullet earnings contributions by FY18 at RM165m with stronger growth in FY19E of RM552m based on our estimated FY17, FY18 and FY19 cumulative sales of GBP1.55b, GBP2.11b and GBP2.34b, respectively. We expect investors to look beyond FY17, which is expected to still be in the red as their projects are only be recognized upon completion. Note that their London projects are recognized at share of JV levels resulting in no visible revenue until West Village is completed. No dividends are expected at this juncture.

Expecting strong land banking news post IPO. EWI will be in a net cash position post IPO and debt repayment. The group is likely to embark on more JV structures like Ballymore group to avoid over taxing its balance sheet while allowing for rapid expansions. Furthermore, considering how fast EWI has secured the earlier four projects, we estimate GDV replenishments of RM8.0b over the next 12-18 months.

SUBSCRIBE with a TP of RM1.33 based on 23% discount to its FD SOP of RM1.72 which includes GDV replenishments of RM8.0b at 75% stake. Our applied discount is considered an industry low given that its existing projects have achieved strong take-up rates while we believe their GDV replenishments can be easily launched quickly given their strong execution capabilities. (Refer overleaf for Risks).

Source: Kenanga Research - 17 Mar 2017