company focus eco world development bhd -...
TRANSCRIPT
Refer to important disclosures at the end of this report
BUYBUYBUYBUY RMRMRMRM5.085.085.085.08 KLCIKLCIKLCIKLCI : : : : 1,872.971,872.971,872.971,872.97 (Initiating Coverage)
Price Target :Price Target :Price Target :Price Target : 12-Month RM 6.00
Shariah CompliantShariah CompliantShariah CompliantShariah Compliant :::: Yes
Reason for Report :Reason for Report :Reason for Report :Reason for Report : Initiation
Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Strong property sales, aggressive property
launches, earnings delivery Analyst QUAH He Wei, CFA +603 2604 3966 [email protected]
Price Relative
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J u l - 1 0 J u l - 1 1 J u l - 1 2 J u l - 1 3 J u l - 1 4
R e la t i v e In d e xR M
E c o W o r l d D e v e lo p m e n t B h d ( L H S ) R e la t i v e K L C I IN D E X ( R H S ) Forecasts and Valuation
FY FY FY FY OctOctOctOct ((((RMRMRMRM m) m) m) m) 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF
Turnover 156 84 942 2,318 EBITDA 34 13 241 446 Pre-tax Profit 30 10 103 267 Net Profit 24 8 77 200 Net Pft (Pre Ex.) 24 8 77 200 EPS (sen) 9.6 1.2 11.8 30.4 EPS Pre Ex. (sen) 9.6 1.2 11.8 30.4 EPS Gth (%) 237 (87) 882 159 EPS Gth Pre Ex (%) 237 (87) 882 159 Diluted EPS (sen) 9.6 1.2 11.8 30.4 Net DPS (sen) 0.0 0.0 0.0 0.0 BV Per Share (sen) 125.8 378.6 390.3 420.8 PE (X) 53.0 423.9 43.2 16.7 PE Pre Ex. (X) 53.0 423.9 43.2 16.7 P/Cash Flow (X) 42.5 122.1 nm nm EV/EBITDA (X) 39.0 380.7 22.7 12.8 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 4.0 1.3 1.3 1.2 Net Debt/Equity (X) 0.1 0.7 0.8 0.8 ROAE (%) 7.9 0.6 3.1 7.5 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: 4.7 5.5 10.8
Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 4 S: 1 H: 0
ICB IndustryICB IndustryICB IndustryICB Industry : Financials ICB Sector: ICB Sector: ICB Sector: ICB Sector: Real Estate Investment & Services Principal Business:Principal Business:Principal Business:Principal Business: Township developer with 4,400 acres of land bank offering comprehensive range of products *13-month period for FY14 due to FYE change to Oct from Sep
Source of all data: Company, AllianceDBS, Bloomberg Finance L.P
At A Glance Issued Capital (m shrs) 253 Mkt. Cap (RMm/US$m) 1,287 / 404 Major Shareholders Liew Tian Xiong (%) 35.1 Eco World Development Holdings (%) 20.0 Free Float (%) 24.5 Avg. Daily Vol.(‘000) 967
MalaysiaMalaysiaMalaysiaMalaysia Equity Equity Equity Equity Research Research Research Research
21 Jul 2014
Company Focus
Eco World Development Bhd Bloomberg: ECW MK | Reuters: ECOW.KL Refer to important disclosures at the end of this report
New kid with old hands • New lease of life with RM43bn GDV pipeline
projects under reinvigorated corporate identity, back by a highly experienced management team
• RM5bn sales target for the next two years to spearhead complete transformation
• Initiate with BUY and RM6.00 TP
DNA of DNA of DNA of DNA of a a a a property bellwetherproperty bellwetherproperty bellwetherproperty bellwether. . . . ECW (formerly known as
Focal Aims), a relatively new property developer, is helmed by
former top executives of SP Setia. Since the takeover by Eco
World Development Holdings Sdn Bhd (20% stake; EWH) and
Liew Tian Xiong (35% stake; eldest son of Tan Sri Liew Kee
Sin – founder of SP Setia) in Nov13, ECW has proposed to
acquire development rights of eight subsidiaries from Eco
World Development Sdn Bhd (EWSB; 50% owned by EWH)
that will position the Group as the fastest-rising property
developer in Malaysia.
4,4004,4004,4004,400----acre acre acre acre land bank worth RM43.5bn GDVland bank worth RM43.5bn GDVland bank worth RM43.5bn GDVland bank worth RM43.5bn GDV will offer ECW
immediate presence in Klang Valley, Iskandar Malaysia and
Penang – Malaysia’s top property hotspots. The Group targets
to achieve RM5bn sales over two years, given the new
projects to be launched over FY14-15F.
ValueValueValueValue----accretive land acquisitionaccretive land acquisitionaccretive land acquisitionaccretive land acquisition in the pipelinein the pipelinein the pipelinein the pipeline. . . . Thanks to its
management’s track record, ECW is participating in the
redevelopment of the former Pudu Jail site at a 20-acre prime
Bukit Bintang land which could carry RM7bn GDV. The board
is still deliberating on the offer to acquire a 1.18-acre land in
Parramatta, Australia, and it could secure the 470-acre land in
Batu Kawan which we understand it is the frontrunner in the
request for proposal from the Penang state government.
Initiate with BUYInitiate with BUYInitiate with BUYInitiate with BUY. . . . We arrive at our TP of RM6.00, based on a
20% discount to our RNAV methodology (pre-share split). On
ex-all basis, we value ECW at RM2.00 (excluding 7-yr warrant
dilution). We expect ECW’s earnings to grow substantially to
RM77m in FY15 from RM24m in FY13, thanks to the
unprecedented property sales boosted by the management
team’s undisputed brand name.
Company Focus
Eco World Development Bhd
Page 2
SWOT Analysis
StrengthsStrengthsStrengthsStrengths WeaknessWeaknessWeaknessWeakness
• Impressive Impressive Impressive Impressive execution track recordexecution track recordexecution track recordexecution track record underpinned by former SP Setia management team which had grown SP Setia into the Malaysian property bellwether from a relatively small establishment.
• Strong Strong Strong Strong market confidencemarket confidencemarket confidencemarket confidence. Despite being a relatively new property developer, ECW has been able to sell properties at an unprecedented pace, reflecting property buyers’ confidence in the management team’s strong brand name.
• Huge land bankHuge land bankHuge land bankHuge land bank. ECW is now in the midst of a corporate exercise that will leapfrog its land bank from 1,300 to 4,400 acres upon completion of the deal.
• Innovative product offeringsInnovative product offeringsInnovative product offeringsInnovative product offerings. ECW is likely to offer innovative products via well-crafted township planning, given its large parcel of land bank
• Building up from scratchBuilding up from scratchBuilding up from scratchBuilding up from scratch. Historically, ECW has not had successful large-scale projects to boast of.
• Relatively more expensive land costRelatively more expensive land costRelatively more expensive land costRelatively more expensive land cost. ECW is acquiring vast land banks at relatively higher prices due to the steep appreciation over the past few years.
• Premium pricingPremium pricingPremium pricingPremium pricing. ECW’s higher selling price relative to some of its peers may not be sustainable if the economic outlook deteriorates.
OpportunitiesOpportunitiesOpportunitiesOpportunities ThreatsThreatsThreatsThreats
• Favourable demographicsFavourable demographicsFavourable demographicsFavourable demographics. Young and growing population and workforce will continue to support property demand, especially in Greater KL which is also the employment hub.
• Urban migrationUrban migrationUrban migrationUrban migration. Malaysian government’s aspiration to grow the Greater KL population to 10m by 2020 from an estimated 7m currently will serve as a major demand driver
• MMMMRRRRT connectivity T connectivity T connectivity T connectivity will help support demand, especially in the suburban areas given the availability of vast land bank
• Relatively weaker property sentiment.Relatively weaker property sentiment.Relatively weaker property sentiment.Relatively weaker property sentiment. The strong property price surge over the last few years, coupled with recent tightening measures, could weaken property sales as property buyers are becoming more cautious.
• Tighter bank lendingTighter bank lendingTighter bank lendingTighter bank lending. Stricter lending guidelines by banks due to rising housing debt may lead to softer sales.
• Rising costRising costRising costRising cost. Construction and building material costs have been on the uptrend which may erode developers’ profitability.
Source: AllianceDBS
Company Focus
Eco World Development Bhd
Page 3
Company Background New lease of lifeNew lease of lifeNew lease of lifeNew lease of life.... EWH and Liew Tian Xiong took over ECW
(previously known as Focal Aims) with a 65% stake in Nov13
after months of speculation that ECW would be Tan Sri Liew
Kee Sin’s listed vehicle after his exit from SP Setia. With the
recent proposed acquisition and fund raising exercise
(expected completion by Oct14), ECW will be propelled to
the forefront of the Malaysian property sector, given its
massive 4,400-acre land bank with RM43.4bn GDV potential.
Massive corporate exercise to transform ECWMassive corporate exercise to transform ECWMassive corporate exercise to transform ECWMassive corporate exercise to transform ECW. The proposed
corporate exercise announced in Apr14 entails:
a) Proposed acquisition of development rights to eight
projects from EWSB
b) Proposed subscription of shares in ECW by shareholders
of EWSB to partially fund the acquisitions and ensure
continuity of ownership
c) Proposed rights issue with warrants and up to 20%
proposed private placement
It also includes the acquisition of two EWSB subsidiaries, Eco
World Project Management Sdn Bhd (project management
team) and Eco Macalister Development Sdn Bhd (investment
property asset in Penang).
Currently, ECW has only one ongoing project in Kota Masai,
with 991.6 acres left for development. The proposed
corporate exercise will offer immediate presence in the key
property hotspots in Malaysia – Klang Valley, Iskandar
Malaysia and Penang. This will offer ECW the much needed
platform to drive exponential growth prospects, leveraging
on its execution capability and track record.
Proposed acquisitions and corporate structure
Source: AllianceDBS, Company
Proposed fund raising
sha re ssha re ssha re ssha re s Rema rksRema rksRema rksRema rks
(m)(m)(m)(m)
share base 253.3
share split 506.6
share subscription 806.8 1,371.6
1,313.5
656.7 788.0
1,970.2
20% placement 394.0 634.4
2,364.3
warrants 525.4 1,035.0
2,889.7
Proce e ds Proce e ds Proce e ds Proce e ds
(RMm)(RMm)(RMm)(RMm)
@ RM1.70/share by
Sinarmas and EWH
rights issue with
warrants
entitlement not fixed
Price not fixed
Source: AllianceDBS, Company
Sales Trend Profitability Trend
-50.0%
150.0%
350.0%
550.0%
750.0%
950.0%
0
500
1,000
1,500
2,000
2012A 2013A 2014F 2015F 2016F
RM m
Total Revenue Revenue Growth (%) (YoY)
7
57
107
157
207
257
307
357
407
2012A 2013A 2014F 2015F 2016F
RM m
Operating EBIT Pre tax Profit Net Profit
Source: Company, AllianceDBS
Sinarmas EWH
EWSB
Liew TianXiong
50% 50%
ECW
20%
35%
- 8 subsidiaries- Eco Macalister- Eco World project management
Present
- Proposed acquisition of development rights of 8 subsidiaries- Proposed acquisition of Eco Macalister and Eco World project management
Company Focus
Eco World Development Bhd
Page 4
Chronology of EWSB’s rise prior to the proposed corporate exercise
Source: Company
Raring to goRaring to goRaring to goRaring to go. . . . EWSB’s 3,107 acres of land bank (RM30bn GDV
potential) will also come in handy for ECW to grow its
earnings as several projects, such as the RM11bn Eco
Majestic@Semenyih and RM5.9bn Eco Spring@Tebrau, were
introduced to the public in May14. The land bank would also
help address the skyrocketing land prices which have made it
challenging for developers to acquire sizeable land banks.
With the ready launch pipeline, ECW will be able to just focus
on delivering the products and values to its stakeholders.
Growing on a solid footingGrowing on a solid footingGrowing on a solid footingGrowing on a solid footing. EWSB was incorporated in
Dec11 and it has been on an aggressive land bank acquisition
trail to accumulate 3,106.8 acres of land within Klang Valley,
Penang and Iskandar Malaysia. ECW’s access to the land
banks will set the stage for explosive growth over the next
few years. Though ECW is still a relatively new property
developer in Malaysia, the execution ability of its key
management team has never been in doubt. The strong
response to its EcoSky and EcoBotanic projects launched late
last year has been more than impressive, judging by the
lengthy queues and buying frenzies witnessed at the project
launches, which is unprecedented by any standard for a new
developer.
Ready launch pipeline with the land bank acquisitions
Source: AllianceDBS, Company
En la rge d la nd ba nkEn la rge d la nd ba nkEn la rge d la nd ba nkEn la rge d la nd ba nk Ac re sAc re sAc re sAc re s GDV (RMm)GDV (RMm)GDV (RMm)GDV (RMm)
Eco Ce ntra lEco Ce ntra lEco Ce ntra lEco Ce ntra l Saujana Glenmarie 25.9 90
Eco Sky 9.6 974
Eco Majestic 1073.1 11,144
Eco Sanctuary 308.7 8,000
1417.31417.31417.31417.3 20,20820,20820,20820,208
Eco SouthEco SouthEco SouthEco South Eco Botanic 325.1 3,794
Eco Spring 613.8 5,871
Eco Tropics 743.6 3,400
Eco Business Park 1 612 3,799
Eco Business Park 2 383.6 3,009
Eco Business Park 3 248 2,000
2 ,9262,9262,9262,926 21,87321,87321,87321,873
Eco NorthEco NorthEco NorthEco North Eco Terraces 12.8 338
Eco Meadows 75.7 916
Eco Macalister 1.1 190
89 .689.689.689.6 1,4441,4441,4441,444
4 ,4334,4334,4334,433 43,52543,52543,52543,525
Company Focus
Eco World Development Bhd
Page 5
Property projects in the pipeline
Source: AllianceDBS, Company
Geographical breakdown of land bank
Geographical breakdown of GDV
Eco Central32%
Eco South66%
Eco North2%
Eco
Central,
46%Eco South,
50%
Eco North,
3%
Source: AllianceDBS, Company Source: AllianceDBS, Company
Exi s ting l a ndExi s ting l a ndExi s ting l a ndExi s ting l a nd Loca tionLoca tionLoca tionLoca tion typetypetypetype Te nureTe nureTe nureTe nure RMpsfRMpsfRMpsfRMpsf
Eco Sanctuary Kota Kemuning Mixed dev. LH 308.7 8,000
Saujana Glenmarie Glenmarie, Shah Alam residential township FH 25.9 90
Eco Tropics Pasir Gudang, Johor Mixed dev. FH 743.6 3,400
Eco Business Park 3 Pasir Gudang, Johor business park FH 248 2,000
1326132613261326 13,49013,49013,49013,490
To a cqu i reTo a cqu i reTo a cqu i reTo a cqu i re
Eco Terraces Paya Terubong, Penang niche dev. FH 12.8 338 61 109.4
Eco Meadows Batu Kawan, Penang integrated commercial FH 75.7 916 116 35.2
Eco Macalister George Town, Penang Serviced apartments FH 1.1 190 48 1,001.8
Eco Sky Taman Wahyu, KL integrated commercial FH 9.6 974 118 282.2
Eco Majestic Semenyih, Selangor mixed dev FH 1073.1 11,144 950 20.3
Eco Botanic Nusajaya, Johor mixed dev FH 325.1 3,794 726 51.3
Eco Spring Tebrau, Johor mixed dev FH 613.8 5,871 670 25.1
Eco Business Park 1 Tebrau, Johor business park FH 612 3,799 598 22.4
Eco Business Park 2 Senai, Johor business park FH 383.6 3,009 546 32.7
3107310731073107 30,03530,03530,03530,035 3,8333,8333,8333,833
ma rke t ma rke t ma rke t ma rke t
va lua tion va lua tion va lua tion va lua tion
(RMm)(RMm)(RMm)(RMm)
s iz e s iz e s iz e s iz e
(a c re )(a c re )(a c re )(a c re )
GDV GDV GDV GDV
(RMm)(RMm)(RMm)(RMm)
Company Focus
Eco World Development Bhd
Page 6
Location of Eco Central in Klang Valley
Source: Company Location of Eco North in Penang
Source: Company
Company Focus
Eco World Development Bhd
Page 7
Location of Eco South in Iskandar Malaysia, Johor
Source: Company
Company Focus
Eco World Development Bhd
Page 8
Management
Highly experienced teamHighly experienced teamHighly experienced teamHighly experienced team. ECW is helmed by Dato’ Chang
Khim Wah – Group President and CEO. Dato’ Chang has 26
years of experience in the property development industry and
he was the Executive Vice President in charge of Southern
and Northern Property divisions of SP Setia where he served
for c.20 years. Also, Mr. Heah Kok Boon, Executive Director
and CFO, was the Head of Corporate Affairs in SP Setia and
has more than 24 years of experience in audit, corporate
finance and corporate investments.
Credible shareholdersCredible shareholdersCredible shareholdersCredible shareholders. The board of directors comprises the
likes of Tan Sri Abdul Rashid bin Abdul Manaf and Dato’
Leong Kok Wah who were also formerly non-executive
directors in SP Setia. Meanwhile, Mr. Liew Tian Xiong,
Executive Director, is likely to have honed his skills under the
guidance of his father, Tan Sri Liew Kee Sin, who himself has
achieved tremendous success as the founder of SP Setia. Tan
Sri Liew has also been appointed as a non-independent and
non-executive director of ECW recently.
Board of Directors
NameNameNameName PositionPositionPositionPosition BackgroundBackgroundBackgroundBackground Tan Sri Abdul Rashid bin Abdul Manaf
Non-Independent Non-Executive Chairman
- Barrister at Law (Middle Temple London)
- Former President of Session Courts in Klang
- Former Senior Federal Counsel for Income Tax Department
Dato' Leong Kok Wah Non-Independent Non-Executive Deputy Chairman
- MBA from University of Hull, UK
- Extensive experience in construction as well as stockbroking industry
- Executive Director of Salcon Berhad
Dato' Chang Khim Wah
President and CEO - Bachelor of Engineering, University of New South Wales
- 26 years of experience in property development
- Former director of SP Setia, EVP in charge of Southern and Northern property divisions
Heah Kok Boon Executive Director - Bachelor in Commerce (Accounting and Commercial Law), University of Melbourne
- 24 years of experience in audit, corporate finance and corporate investment
- Former head of corporate affairs in SP Setia
Liew Tian Xiong Executive Director - Bachelor's degree in Commerce, University of Melbourne
- Working experience from attachments with Pheim Asset Management and AmBank
Tan Sri Liew Kee Sin Non-Independent Non-Executive Director
- Bachelor of Economics Degree, University of Malaya
- Former President and CEO of SP Setia
- Property Man of the Year by FIABCI Malaysia in 2007
Tan Sri Lee Lam Thye Independent Non-Executive Director
- Former Assemblyman and Member of Parliament
- Chairman of National Institute of Occupational Safety and Health
Tang Kin Kheong Independent Non-Executive Director
- Certified Public Accountant, Malaysia
- 23 years of experience as a practicing accountant
Dato' Idrose bin Mohamed
Independent Non-Executive Director
- Bachelor Degree in Civil Engineering, UiTM
- 30 years of experience in construction, project and infrastructure implementation
Company Focus
Eco World Development Bhd
Page 9
Replicating a highly successful SP Setia? Another ‘SP Setia’ in the makingAnother ‘SP Setia’ in the makingAnother ‘SP Setia’ in the makingAnother ‘SP Setia’ in the making???? Given that most of the
management and employees come from SP Setia, there is
little doubt in terms of the execution track record of ECW.
The more pertinent concern would be the extent of ECW in
emulating the success in SP Setia as we believe that the ‘SP
Setia DNA’ within the senior management team would lend
credence to what lies ahead for this new developer which has
been dominating the news headlines of late.
SP Setia’s record-breaking property sales
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
(RMb)
Source: AllianceDBS, SP Setia
SP Setia’s revenue growing rapidly
(15)
(10)
(5)
0
5
10
15
20
25
30
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
%%%%RMmRMmRMmRMm
Revenue revenue growth
Source: AllianceDBS, Company
Visionary leadershipVisionary leadershipVisionary leadershipVisionary leadership. Under the stewardship of Tan Sri Liew
Kee Sin, SP Setia has been charting new highs year after year
when it comes to financial as well as operational
performance. SP Setia was the first property developer to
introduce the innovative 5/95 scheme during the financial
crisis where property buyers only had to fork out 5% of the
purchase price upon signing the sales & purchase agreement.
It turned out that other developers also followed suit on the
scheme which has proven to be critical to avert the severe
downturn back then.
Undisputed property bellwetherUndisputed property bellwetherUndisputed property bellwetherUndisputed property bellwether. The ECW’s existing
management team was instrumental in growing SP Setia to
where it is today. SP Setia’s market cap was less than RM2bn
back in 2006 and today the company is worth more than
RM8bn, implying substantial returns to its shareholders. This
is largely attributable to the entrepreneurial drive of the
management which had been relentlessly expanding the
company’s property development activities.
SP Setia’s rising market cap
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
RMmRMmRMmRMm
Source: AllianceDBS, Bloomberg L.P.
Relentless expansion driveRelentless expansion driveRelentless expansion driveRelentless expansion drive. SP Setia has established a solid
brand name within Malaysian households, thanks to its
outstanding delivery throughout the years. Value-adding
projects with lifestyle-enhancing features for their township
developments have been sought after by buyers in
anticipation of future appreciation. Tan Sri Liew and his key
executives had also brought SP Setia to expand beyond
Malaysia, penetrating into Melbourne, London, Vietnam and
Singapore. The tremendous success of the company led to
numerous The Edge Malaysia and FIABCI awards.
Poised for successPoised for successPoised for successPoised for success. Therefore, ECW stands to leverage on the
vast experience of its management team to add value to the
4,400 acres of land bank that it will own upon completion of
the proposed corporate exercise.
Company Focus
Eco World Development Bhd
Page 10
Competitive Strengths Strong brand nameStrong brand nameStrong brand nameStrong brand name. While the “Eco World” brand name was
only introduced to the market last year, the management and
key shareholders behind ECW have long been widely
acclaimed for their strong delivery and execution track record.
The sell-outs of EWSB’s first launch at Eco Botanic@Nusajaya
and Eco Sky@Taman Wahyu (both to be injected into ECW)
underline the overwhelming confidence bestowed by the
public. As at Mar14, EWH had already achieved RM1.1bn
sales from the two projects. We expect subsequent phases of
the projects to continue garnering keen interest from
property buyers.
ECW showcased its EcoMajestic@Semenyih, Eco
Spring@Tebrau, EcoTropics@Pasir Gudang and Eco Business
Park 1 in May14, collectively accounting for RM20.8bn GDV.
The first phase of EcoMajestic@Semenyih attracted
overwhelming response from buyers where 95% of the 612
units of terraced homes with varying sizes priced from
RM586k onwards were sold over a weekend. Meanwhile,
both EcoSpring and EcoTropics managed to achieve 85%
take-up for the total 197 cluster (>RM1m/unit) and semi-
detached units (>RM1.5m/unit), as well as 497 terraced
homes (>RM650k/unit).
ComprehComprehComprehComprehensive product rangeensive product rangeensive product rangeensive product range. ECW will boast a wide range
of products including affordable, upgrader and luxury homes,
as well as integrated high-rise developments and green
business parks, catering to all walks of life. ECW has targeted
RM5bn sales within two years as the proposed corporate
exercise will increase its project pipeline to 11 projects from
just three at the moment.
Top developer in the makingTop developer in the makingTop developer in the makingTop developer in the making. Upon completion of the
corporate exercise, ECW’s land bank will consist of 1,417
acres in Klang Valley, 2,926 acres in Iskandar Malaysia and 90
acres in Penang. The land bank will be enough to sustain
ECW’s growth over the next 10 years.
Execution team in placeExecution team in placeExecution team in placeExecution team in place. ECW will also have the project
management team that is overseeing and executing EWSB’s
property projects. There will also be a heritage building at its
Eco Macalister site which will be refurbished into a sales and
marketing office to showcase ECW’s portfolio of investment-
grade properties.
Growth Strategies Rein in rising land pricesRein in rising land pricesRein in rising land pricesRein in rising land prices. Upon completion of the corporate
exercise, ECW will have a ready launch pipeline for its
property projects, thanks to the massive land bank which is
strategically situated within Malaysia’s property hotspots of
Klang Valley, Penang and Iskandar Malaysia. Development
land typically account for 10-20% of a project GDV while
construction costs (labour, building materials, etc) will
account for 50-60%. Given the scale of ECW projects, we
believe its initial cost will be higher, as the Group strives to
add value by providing world-class eco living through
innovative designs.
Right productRight productRight productRight productssss at right locationsat right locationsat right locationsat right locations. Most of ECW’s projects will
be gated and guarded landed properties which are expected
receive stronger demand than high-rise projects, particularly
in Iskandar Malaysia where there will be massive supply of
condos flooding the market when the launched projects over
the past few years are completed in the near term.
Aggressive launch pipelineAggressive launch pipelineAggressive launch pipelineAggressive launch pipeline. Despite the ambitious sales target
amid weaker sentiments after the cooling measures
announced by the government in Oct13, ECW’s
management’s previous track record suggests that achieving
the feat may not be far-fetched. The overwhelming response
for some of the launches in recent months further reinforces
our view that ECW’s unrivalled brand name is likely to attract
buyers at an unprecedented pace.
Explosive earnings trajectoryExplosive earnings trajectoryExplosive earnings trajectoryExplosive earnings trajectory. We expect ECW’s earnings to
grow exponentially to RM77m in FY15 from RM24m in FY13,
implying an impressive 2-year earnings CAGR of 78%.
StrengthStrengthStrengthStrengthening balance sheetening balance sheetening balance sheetening balance sheet. As part of the proposed
development rights acquisition, ECW will also undertake a
share subscription by EWSB to partly finance its proposed
acquisition of development rights, as well as a proposed
rights issue with warrants to raise RM788m gross proceeds.
The larger balance sheet will enable ECW to pursue its land
banking activity and scale up its business operations to
support its expansion plans.
Company Focus
Eco World Development Bhd
Page 11
More catalyst in the pipeline Track record speaks for itselfTrack record speaks for itselfTrack record speaks for itselfTrack record speaks for itself. ECW has been roped in to
participate in the former Pudu Jail redevelopment project,
known as Bukit Bintang City Centre (BBCC) via a 40% equity
stake in the consortium with EPF (20%) and UDA Holdings
Bhd (40%; landowner). It has been reported that the
execution track record of the management team has been
the winning factor for the partnership.
BBCC will be developed on the 20-acre prime land in Bukit
Bintang with a potential GDV of RM7bn. The mixed
development will comprise three residential towers housing
2,000 units, a 40-storey block, a 1m-sf shopping mall, a
Malaysian grand bazaar, mosque, al fresco dining terraces
and a food court to complete this 5m NLA project.
At this juncture, ECW is still working closely in consultation
with UDA Holdings to come up with a conceptual master
plan. Assuming the project is developed over a 10-year period
with a pretax margin of 20%, we estimate that BBCC will
enhance our ex-all RNAV by 8 sen (3%).
Venture into AustraliaVenture into AustraliaVenture into AustraliaVenture into Australia. ECW has also received an offer from
EWSB to sell 1.18 acres of land in Church Street, Parramatta,
NSW 2150, Australia at the same price and on the same
terms as that secured by EWSB from the vendor. The
purchase price of AUD28m implies a land cost of AUD545psf.
The land is located on the southern fringe of the Parramatta
CBD retail precinct, close to the Westfield Shopping Precinct,
railway station and bus interchange. ECW’s board has yet to
make a decision on the offer, and an EGM will be convened
should the board accept the offer.
Batu KawanBatu KawanBatu KawanBatu Kawan landlandlandland. Pursuant to the request of proposal (RFP)
by the Penang Development Corporation in Aug13 for the
development of an international theme park and an 18-hole
golf resort development at Bandar Cassia in Batu Kawan,
ECW has participated in the RFP for golf course development,
where the winning bidder will have to develop a golf course
on 60 ha of the total 190 ha land. While there is no official
confirmation on the status of the successful bidders, we
understand that ECW is the only company that has expressed
interest to bid where the opening bid started at RM45psf.
These potential land bank acquisitions clearly illustrate the
management’s unbridled desire to grow ECW into one of the
top property developers in Malaysia. As it is, ECW already has
ready launch pipeline which could keep the company busy
over the next decade, by virtue of its massive 4,400-acre land
bank.
Key Risks Relatively weaker property sentimentRelatively weaker property sentimentRelatively weaker property sentimentRelatively weaker property sentiment. The strong property
price surge over the last few years, coupled with recent
tightening measures, could hamper property sales as property
buyers are getting more cautious with their property
purchase decisions.
Tighter bank lendingTighter bank lendingTighter bank lendingTighter bank lending. Stricter lending guidelines by banks due
to rising housing debt may lead to softer sales as certain
property buyers have been facing difficulty in obtaining
mortgage loans.
Rising costRising costRising costRising costssss. In tandem with rising property prices,
construction and building material costs have been on the
uptrend and may erode developers’ profitability.
Company Focus
Eco World Development Bhd
Page 12
Key Assumptions
FY FY FY FY OctOctOctOct 2011201120112011AAAA 2012201220122012AAAA 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF
Property sales (RMm) 1,769.8 1,945.1 3,092.5
Sensitivity Analysis 2012012012015555
Sales +/- 1% Net Profit +/-
0.5%
Income Statement (RM m)
FY FY FY FY OctOctOctOct 2011201120112011AAAA 2012201220122012AAAA 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF
Revenue 56 65 156 84 942 2,318
Cost of Goods Sold (44) (43) (108) (59) (559) (1,524)
Gross ProfitGross ProfitGross ProfitGross Profit 12121212 22222222 48484848 26262626 383383383383 793793793793
Other Opng (Exp)/Inc (11) (11) (15) (13) (141) (348)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 0000 11111111 34343434 13131313 241241241241 446446446446
Other Non Opg (Exp)/Inc 0 0 0 0 0 0
Associates & JV Inc 0 0 0 0 0 0
Net Interest (Exp)/Inc (2) (3) (4) (3) (138) (179)
Exceptional Gain/(Loss) 0 0 0 0 0 0
PrePrePrePre----tax Profittax Profittax Profittax Profit (2)(2)(2)(2) 8888 30303030 10101010 103103103103 267267267267
Tax 0 (1) (5) (2) (26) (67)
Minority Interest 0 0 0 0 0 0
Preference Dividend 0 0 0 0 0 0
Net ProfitNet ProfitNet ProfitNet Profit (2)(2)(2)(2) 7777 24242424 8888 77777777 200200200200
Net Profit before Except. (2) 7 24 8 77 200
EBITDA 0 11 34 13 241 446
Growth
Revenue Gth (%) nm 17.2 139.4 (46.0) 1,015.6 146.2
EBITDA Gth (%) nm 13,233.3 201.3 (61.2) 1,743.0 84.5
Opg Profit Gth (%) nm 12,881.0 207.2 (60.9) 1,743.0 84.5
Net Profit Gth (%) nm nm 237.0 (67.6) 882.3 158.6
Margins & Ratio
Gross Margins (%) 20.6 33.7 30.9 30.5 40.6 34.2
Opg Profit Margin (%) 0.2 16.7 21.4 15.5 25.6 19.2
Net Profit Margin (%) (3.7) 11.0 15.5 9.3 8.2 8.6
ROAE (%) (1.4) 2.5 7.9 0.6 3.1 7.5
ROA (%) (0.9) 1.5 5.0 0.3 1.5 3.2
ROCE (%) 0.0 2.2 6.2 0.4 3.7 6.3
Div Payout Ratio (%) N/A 0.0 0.0 0.0 0.0 0.0
Net Interest Cover (x) 0.0 3.9 8.6 3.7 1.7 2.5
Source: Company, AllianceDBS
Margins Trend
7.0%
9.0%
11.0%
13.0%
15.0%
17.0%
19.0%
21.0%
23.0%
25.0%
27.0%
2012A 2013A 2014F 2015F 2016F
Operating Margin % Net Income Margin %
Underpinned by strong unbilled sales of RM1.1bn as at Mar14
Company Focus
Eco World Development Bhd
Page 13
Balance Sheet (RM m) FY FY FY FY OctOctOctOct 2011201120112011AAAA 2012201220122012AAAA 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF
Net Fixed Assets 2 1 1 1 101 201
Invts in Associates & JVs 0 0 0 0 0 0
Other LT Assets 319 303 302 4,110 4,230 4,146
Cash & ST Invts 4 7 25 413 412 208
Inventory 29 29 40 21 157 386
Debtors 14 45 40 21 238 586
Other Current Assets 81 106 82 79 553 1,094
Total AssetsTotal AssetsTotal AssetsTotal Assets 447447447447 491491491491 489489489489 4,6464,6464,6464,646 5,6925,6925,6925,692 6,6216,6216,6216,621
ST Debt
26 30 47 2,057 2,057 2,057
Creditor 17 54 40 22 471 1,159
Other Current Liab 0 0 4 2 26 67
LT Debt 38 34 5 5 500 500
Other LT Liabilities 74 74 72 72 72 72
Shareholder’s Equity 289 296 319 2,486 2,564 2,763
Minority Interests 3 3 3 3 3 3
Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 447447447447 491491491491 489489489489 4,6464,6464,6464,646 5,6925,6925,6925,692 6,6216,6216,6216,621
Non-Cash Wkg. Capital 107 126 118 98 451 840
Net Cash/(Debt) (61) (57) (27) (1,648) (2,145) (2,349)
Debtors Turn (avg days) 46.3 165.5 98.7 131.5 50.3 64.9
Creditors Turn (avg days) 69.7 299.9 158.7 191.4 160.8 195.1
Inventory Turn (avg days) 118.0 245.4 116.5 189.6 58.2 65.0
Asset Turnover (x) 0.2 0.1 0.3 0.0 0.2 0.4
Current Ratio (x) 3.0 2.2 2.0 0.3 0.5 0.7
Quick Ratio (x) 0.4 0.6 0.7 0.2 0.3 0.2
Net Debt/Equity (X) 0.2 0.2 0.1 0.7 0.8 0.8
Net Debt/Equity ex MI (X) 0.2 0.2 0.1 0.7 0.8 0.9
Capex to Debt (%) 0.5 0.1 0.1 0.0 3.9 3.9
Source: Company, AllianceDBS
Asset Breakdown Net Fixed Assets -0.3%
Assocs'/JVs -0.0%
Bank, Cash and Liquid Assets -90.4%
Inventory -4.7%
Debtors -4.7%
Debt assumed from proposed corporate exercise
Company Focus
Eco World Development Bhd
Page 14
Cash Flow Statement (RM m)
FY FY FY FY OctOctOctOct 2011201120112011AAAA 2012201220122012AAAA 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF
Pre-Tax Profit (2) 8 30 10 103 267
Dep. & Amort. 0 0 0 0 0 0
Tax Paid 0 0 0 (4) (2) (26)
Assoc. & JV Inc/(loss) 0 0 0 0 0 0
Chg in Wkg.Cap. 28 (1) 6 21 (295) (345)
Other Operating CF (8) (3) (6) 0 0 0
Net Operating CFNet Operating CFNet Operating CFNet Operating CF 17171717 4444 30303030 27272727 (194)(194)(194)(194) (105)(105)(105)(105)
Capital Exp.(net) 0 0 0 0 (100) (100)
Other Invts.(net) 0 0 0 (427) (203) 0
Invts in Assoc. & JV 0 0 0 0 0 0
Div from Assoc & JV 0 0 0 0 0 0
Other Investing CF 0 0 0 0 0 0
Net Investing CFNet Investing CFNet Investing CFNet Investing CF 0000 0000 0000 (427)(427)(427)(427) (303)(303)(303)(303) (100)(100)(100)(100)
Div Paid 0 0 0 0 0 0
Chg in Gross Debt (19) (5) (11) 0 495 0
Capital Issues 0 0 0 788 0 0
Other Financing CF 0 0 0 0 0 0
Net Financing CFNet Financing CFNet Financing CFNet Financing CF (19)(19)(19)(19) (5)(5)(5)(5) (11)(11)(11)(11) 788788788788 495495495495 0000
Currency Adjustments 0 5 (1) 0 0 0
Chg in Cash (2) 3 18 388 (1) (205)
Opg CFPS (sen) (4.1) 2.1 9.5 0.9 15.4 36.7
Free CFPS (sen) 6.7 1.5 11.9 4.2 (44.7) (31.2)
Source: Company, AllianceDBS
Capital Expenditure
0
20
40
60
80
100
120
2014F 2015F 2016F
Capital Expenditure (-)
Cash consideration for the proposed acquisitions
Proceeds from rights issue
90% balance payment for Semenyih land acquisition
Company Focus
Eco World Development Bhd
Page 15
Quarterly / Interim Income Statement (RM m)
FY FY FY FY OctOctOctOct 1Q1Q1Q1Q2013201320132013 2Q2Q2Q2Q2013201320132013 3Q3Q3Q3Q2013201320132013 4Q4Q4Q4Q2013201320132013 1Q1Q1Q1Q2014201420142014 2Q2Q2Q2Q2014201420142014
Revenue 35 34 44 44 23 27
Cost of Goods Sold (25) (23) (28) (32) (18) (20)
Gross ProfitGross ProfitGross ProfitGross Profit 10101010 11111111 16161616 12121212 5555 7777
Other Oper. (Exp)/Inc (3) (4) (3) (5) (3) (3)
Operating ProfitOperating ProfitOperating ProfitOperating Profit 7777 7777 13131313 7777 2222 3333
Other Non Opg (Exp)/Inc 0 0 0 0 0 0
Associates & JV Inc 0 0 0 0 0 0
Net Interest (Exp)/Inc (1) 0 0 (3) 0 0
Exceptional Gain/(Loss) 0 0 0 0 0 0
PrePrePrePre----tax Profittax Profittax Profittax Profit 6666 7777 13131313 4444 2222 3333
Tax 0 0 (2) (4) (1) 0
Minority Interest 0 0 0 0 0 0
Net ProfitNet ProfitNet ProfitNet Profit 7777 7777 11111111 0000 1111 3333
Net profit bef Except. 7 7 11 0 1 3
EBITDA 7 7 13 7 2 3
Growth
Revenue Gth (%) 42.4 (3.7) 31.1 0.0 (48.6) 18.7
EBITDA Gth (%) 40.7 (1.8) 85.4 (48.9) (64.0) 45.1
Opg Profit Gth (%) 40.7 (1.8) 85.4 (48.9) (64.0) 45.1
Net Profit Gth (%) 98.8 0.6 63.8 (99.8) 2,814.8 226.8
Margins
Gross Margins (%) 28.9 32.1 35.9 26.6 21.9 24.6
Opg Profit Margins (%) 20.3 20.7 29.3 15.0 10.5 12.8
Net Profit Margins (%) 19.0 19.9 24.9 0.1 3.5 9.6
Margins Trend
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2Q2012
3Q2012
4Q2012
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014
2Q2014
Operating Margin % Net Income Margin %
Source: Company, AllianceDBS
Company Focus
Eco World Development Bhd
Page 16
Valuation Premium valuationPremium valuationPremium valuationPremium valuation. ECW is currently trading at 53x FY13 PE.
While the valuation appears excessive at this juncture, we
expect it to moderate to a more palatable level by FY16,
when the full impact of its aggressive property sales will be
reflected. Based on its current share price, we estimate fully-
diluted (before warrant dilution) FY15F PE of 43x and FY16F
PE of 17x, after taking into consideration the RM788m rights
issue with warrants.
We derive our implied TP of RM6.00 after applying a 20%
discount to our ex-all RNAV of RM2.00 (based on
benchmark price of RM5.35). Our property sales
assumptions of RM1.7bn and RM2bn for FY14 and FY15 are
below management’s total target of RM5bn for the coming
two years. This is mainly to account for the weaker property
sentiment amid more cautious spending by potential
property buyers.
Expect strong earnings growthExpect strong earnings growthExpect strong earnings growthExpect strong earnings growth. Given that EWSB has
already achieved RM1.1bn sales as at Mar14, we believe
ECW will continue to ride on the strong sales momentum for
the other pipeline projects. Nevertheless, ECW’s net gearing
level may remain elevated at 0.7x by FY14, as ECW will
assume RM2bn debt from the proposed corporate exercise,
as well as the requirement for more working capital to roll
out its projects.
Solid backing from substantial shareholdersSolid backing from substantial shareholdersSolid backing from substantial shareholdersSolid backing from substantial shareholders. Upon
completion of the proposed corporate exercise (share split,
share subscription, rights issue with warrants, placement),
EWH will be the largest shareholder with a 32% stake, while
Sinarmas Harta and Liew Tian Xiong will own 26% and 11%
respectively. We believe the substantial shareholders will be
committed to drive ECW to greater heights, given its
ambitious plan to catapult ECW into one of the top property
developers in Malaysia.
RNAV
Pro je c tPro je c tPro je c tPro je c t GDV (RMm)GDV (RMm)GDV (RMm)GDV (RMm) Pro je c t NPV@10%Pro je c t NPV@10%Pro je c t NPV@10%Pro je c t NPV@10%
Eco Centra lEco Centra lEco Centra lEco Centra l Saujana Glenmarie 90 18
Eco Sky 974 102
Eco Majestic 11,144 820
Eco Sanctuary 8,000 544
Eco Majestic 2 3,500 199
23 ,70823,70823,70823,708 1,6831,6831,6831,683
Eco SouthEco SouthEco SouthEco South Eco Botanic 3,794 301
Eco Spring 5,871 280
Eco Tropics 3,400 195
Eco Business Park 1 3,799 416
Eco Business Park 2 3,009 349
Eco Business Park 3 2,000 232
21 ,87321,87321,87321,873 1,7721,7721,7721,772
Eco NorthEco NorthEco NorthEco North Eco Terraces 338 46
Eco Meadows 916 109
Eco Macalister 190 29
1 ,4441,4441,4441,444 184184184184
Tota lTota lTota lTota l 47,02547,02547,02547,025 3,6403,6403,6403,640
RNAVRNAVRNAVRNAV
After tax 2,730
proforma shareholders fund 3,113
5,843
RNAV/sha reRNAV/sha reRNAV/sha reRNAV/sha re 2.47 Excluding 7-year warrants
e x-rights TPe x-rights TPe x-rights TPe x-rights TP 2.002.002.002.00 20% discount
Impl ie d TP (cum)Impl ie d TP (cum)Impl ie d TP (cum)Impl ie d TP (cum) 6.006.006.006.00
Source: AllianceDBS
Company Focus
Eco World Development Bhd
Page 17
DISCLOSURE
Stock rating definitions STRONG BUY - > 20% total return over the next 3 months, with identifiable share price catalysts within this time frame BUY - > 15% total return over the next 12 months for small caps, >10% for large caps HOLD - -10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps FULLY VALUED - negative total return > -10% over the next 12 months SELL - negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame Commonly used abbreviations Adex = advertising expenditure EPS = earnings per share PBT = profit before tax bn = billion EV = enterprise value P/B = price / book ratio BV = book value FCF = free cash flow P/E = price / earnings ratio CF = cash flow FV = fair value PEG = P/E ratio to growth ratio CAGR = compounded annual growth rate FY = financial year q-o-q = quarter-on-quarter Capex = capital expenditure m = million RM = Ringgit CY = calendar year M-o-m = month-on-month ROA = return on assets Div yld = dividend yield NAV = net assets value ROE = return on equity DCF = discounted cash flow NM = not meaningful TP = target price DDM = dividend discount model NTA = net tangible assets trn = trillion DPS = dividend per share NR = not rated WACC = weighted average cost of capital EBIT = earnings before interest & tax p.a. = per annum y-o-y = year-on-year EBITDA = EBIT before depreciation and amortisation PAT = profit after tax YTD = year-to-date
Company Focus
Eco World Development Bhd
Page 18
DISCLAIMER
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