Has Ewein’s RM800m City of Dreams hit a snag?

KUALA LUMPUR (Aug 1): A stay order imposed by the Penang Appeals Board (PAB) on the execution of the planning permission for Ewein Bhd’s maiden property development venture remains after one year.

But Ewein’s deputy chairman cum managing director Datuk Ewe Swee Kheng is not losing sleep over the fate of the RM800 million City of Dreams project undertaken by subsidiary Ewein Zenith Sdn Bhd.

“The stay order for City of Dreams is an interim order and it is not a complete stay, it is only a conditional one,” Ewe told The Edge Financial Daily when contacted. “Ewein Zenith still continues to carry out the works allowed under the conditional stay order for the project.”

He also pointed out that the company’s second residential project, City of Dreams 2, will not be affected by the PAB action.

The board imposed the stay order on July 23 last year after 12 Seri Tanjung Pinang (STP) residents filed an appeal to the board regarding their concerns about the density and height of the project.

When contacted, PAB registrar Annai Minsai said the next hearing of the matter will take place on Aug 24.

“The hearing’s appellants are Wong Lup Tuck, Loo Geoh Choo and 10 others, while the respondent is the Penang Island City Council (MBPP),” he said.

Ewein Zenith received approval from MBPP for City of Dreams’ planning permission in March last year.

The luxury serviced apartment project, comprising 572 units in the  39-storey twin towers, is located on a 3.67-acre (1.49ha) site in Tanjung Pinang, Penang. The land is adjacent to STP and the construction was to be completed in 48 months starting last year.

Meanwhile, City of Dreams 2, which has a gross development value of RM1 billion, is a three-block luxury serviced apartment that sits on a 4.42-acre freehold land.

Ewein Zenith is 60%-owned by Ewein and 40% by Consortium Zenith BUCG Sdn Bhd (CZBUCG), the company involved in building the Penang state government’s undersea tunnel that connects the island and the peninsula mainland, and three other highways on the island.

This land forms part of the 110-acre freehold land in Tanjung Pinang that the state government plans to compensate CZBUCG for developing the RM6.3 billion integrated road transport project.

The market has been concerned that City of Dreams’ construction progress may hit a snag by November after the group completes the earthworks and piling works.

This is because it is still uncertain as to whether PAB would be able to make a decision by then. The next hearing is in August.

“We don’t know when the board would make a decision,” said Elson Beh, a lawyer representing the 12 STP residents opposed to the project. “They might call for another session in September.”

“From what we understand, the board may need another three months to go through the details, which would work out to be the end of the year. So the soonest the decision would come is by the end of this year or early next year,” added Beh, of Penang-based legal firm YC Wong, when contacted over the phone.

The progress of the construction is crucial to Ewein’s revenue recognition moving forward.

When the project was made known to the public in early 2015, Ewe reportedly said it would generate a gross profit of about RM200 million over the next four years.

For the first quarter ended March 31, 2016, Ewein reported a net profit of RM4.17 million compared with a mere RM679,000 a year ago, while revenue more than doubled to RM20.24 million from RM9.72 million.

Ewein attributed the increase mainly to its property development activity.

Before venturing into property development last year, Ewein was mainly involved in precision sheet metal fabrication, specialising in sheet metal enclosure; designing and fabrication of precision moulds, tools and dies; and precision injection moulding and product finishing.

While it remains uncertain whether City of Dreams could proceed further, an analyst who declined to be named believes that Ewein is capable of resolving the matter by presenting the results of a feasibility study done prior to the development application.

“Even if there is a delay of a few months, they (Ewein) should be able to catch up because developers usually give themselves some buffer of around six months in terms of construction period,” he said.

However, he noted that it is risky for Ewein to only depend on one project currently, especially in an environment where the property market is slowing down.

Nonetheless, another analyst pointed out that it would be awkward for PAB to call off the project.

“The land is a form of payment from the state government to CZBUCG, and if the board said they are not allowed to build high-rise there, the money that Ewein Zenith is able to make out of the land will become lesser,” he said.

Ewein’s share price has been declining after it reached an all-time high of RM1.51 on Jan 12. Year to date, the counter has fallen 28.57%.

Last Friday, the stock closed unchanged at 89.5 sen, giving the company a market capitalisation of RM198.57 million.

This article first appeared in The Edge Financial Daily, on Aug 1, 2016. Subscribe to The Edge Financial Daily here.