EcoWorld’s en bloc sale seen enhancing BBCC project

Maintain buy with an unchanged target price (TP) of RM1.49: We are positive on Eco World Development Group Bhd’s (EcoWorld) en bloc sale of retail spaces of its Bukit Bintang City Centre (BBCC) project. The sale will not only help lower overall sales risk but also enhance the marketability of BBCC with the presence of a foreign partner — Mitsui Fudosan. With this en bloc sale, EcoWorld may have achieved its internal sales target of RM3 billion for the financial year ending Oct 31, 2016 (FY16). We maintain our earnings forecasts, a TP of RM1.49 and “buy” rating.

EcoWorld, which owns a 40% stake in the BBCC project, has entered into a sale and purchase agreement with a joint-venture (JV) company set up by Mitsui Fudosan (50%), UDA Holdings Bhd (32%), EcoWorld (12%) and the Employees Provident Fund (6%) for the en bloc sale of retail spaces of the BBCC for RM505.8 million (RM472.5 million for the strata space where the retail mall will be and RM33.3 million for the fully constructed retail podium). The JV will construct the retail mall (1.35 million sq ft of gross floor area with 2,400 car park bays at its own cost).

We are positive on this latest development. In our view, the en bloc sale will lower the overall project risk. Also, the presence of Mitsui Fudosan will help enhance marketability and differentiate the BBCC from nearby projects such as Bandar Malaysia and Tun Razak Exchange. To recap, Mitsui Fudosan is the largest Japanese real estate conglomerate. It currently manages 110 retail properties in Japan and abroad.

EcoWorld locked in RM2.2 billion in property sales in the first 10 months of FY16. Its recent launches worth RM1 billion in gross development value have received strong responses with an average booking rate of 81%. We have incorporated the en bloc sale into our sales forecast of RM3.1 billion for FY16. Hence, we make no changes to our forecasts. — Maybank IB Research, Oct 14

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This article first appeared in The Edge Financial Daily, on Oct 18, 2016. Subscribe to The Edge Financial Daily here.