Monday, June 20, 2016

Should you invest in Ecoworld?

There are not many new companies, i.e. new brands in the market which can get people excited. When Ecoworld was conceived some 3 - 4 years ago, I was surprised by how much it got people excited. Perhaps the Ecoworld brand is more than the company. It is its leader and Chairman Liew Kiew Sin, whom formerly helmed SP Setia and in the making created iconic projects, i.e. among them Setia Eco Park.

When PNB bought a controlling stake in SP Setia, he decided to leave and sold all his shares (at a hugely attractive price) in the company and started Ecoworld with several other partners.

That company is redefining again how a property developer should be - so much so that I feel that the SP Setia brand which he helped to create is now drowned by a new competitor in town. Now after having left (in fact, prior to him officially leaving), he had his proxies (including son) to manage the newly created developer. That has caused dilemmas among his competitors, and created excitement to property buyers as well as stock investors like me.

The excitement can be seen from the below chart where its share price went up more than 4 times as it did a reverse takeover of a little developer in Johor, called Focal Aims. At that time, as in my true nature as an investor, I was never going to chase after a stock that was spiking up especially when we do not know what their actual plan was.

Now their plan is much more clearer. They are very aggressive with their business (despite the slow down in properties market). Since then, Ecoworld has acquired vast strategic land banks. Among them, landbanks in Semenyih, Kota Kemuning, Batu Kawan (Penang) - later rescinded, 2000+ acres of land in Ijok and the latest a JV near the iconic Setia Alam. It has also managed to secure the old Pudu prison project which is now named BBCC in a JV which is owns 40%.

In the reverse takeover, it also injected several other landbanks which it acquired before the exercise. These has made Ecoworld the new kid on the block, which no one will NOT notice especially if you are a property buyer whether it is to stay or invest.

In a short period of 4 years, it is becoming the leader in the property market. Yes, there are Sime Darby, IOI, IJM, UEM, Mah Sing etc., but they cannot keep up with the style that Ecoworld launches its projects. Obviously, it costs a lot (of marketing expenses) as well in the process but it created such a buzz so much so it is I think it created a dilemma to its competitors.

Ecoworld has raised more than a billion ringgit over this period and it is not stopping with the latest, i.e. its plan to raise another RM770 million through another round of private placements. Notice that its main shareholders have committed to subscribe up to 76% of the placement portion at RM1.30 a share.

Part of the newly raised funds is to  subscribe 30% into its newly created Ecoworld International where it is having projects in London and Australia. This group really has huge appetite and are not afraid to execute. That's their strength.

With the softening property market and that has caused its share price to taper to now RM1.26, I have decided to purchase 8,000 units.

At this price, it is at a market valuation of RM3 billion and I think it is attractive due to the amount of investments that the group has put in to create the brand and company. Also, I can envision how big this group wants to be. It may not have the landbank that Sime Darby has but, there are prospectively some land owners that would want to work with them, such as the case in Cascara and BBCC. Even Tropicana (I think), would want to sell part of its land near Kota Kemuning, as Eco World would be able to enhance the value of properties around the same area where they have projects near each other.

Should one look at its PE to judge its value, I think it is the wrong benchmark at the moment as it is still building its value.
To those who are sceptics or do not really get what I am talking about, take a drive to any of its projects, be it in Penang, Selangor, KL or Johor than you will be amazed with how it has redefined building and selling properties.

Take note that when investing in companies such as Wal-Mart, Airasia - look for cost leaders. When it comes to property developers, look for the value they can create from per square foot of land it owns as against other competitors. Without specific data, in my mind, Eco World is probably one of the best.

Here is the latest portfolio.


ronnie said...

Dear Felicity,

Your portfolio is numerically overweight on the Malaysian property sector.

My major concern is that in an environment of low/negative interest rates, property prices have strong downside potential.

felicity said...

Property companies portfolio is 13% and the purchase are when the stock prices are declining.

Actually, I do not really care about portfolio balancing. That is what most people read from fund managers who write articles or books. I am an individual investors and not fund managers, hence my investment profile need not be the same as fund managers.

Multi said...

Hi felicity

If i remember correctly, you were not so convinced how property companies could sustain as land scarcity is a concern. May i know what make you change that view?

felicity said...

Hi Multi Bagger, I Still have that thinking. EcoWorld as mentioned in my blog is different in the sense that it is in the process of building its brand strength to have JV or even buying other developers land. There are few cases they have done this. Early days, they bought land from DRB HICOM in Jalan Kuching and Johor. If you read the rationale for these companies to sell part of their land to EcoWorld is due to what Eco can bring in terms of property appreciation to the surrounding. Similarly, 2 years ago, Tropicana sold part of its land in Kota Kemuning to Ecoworld with the hope that together they can bring up the value of their projects.

The management had done this before towards Setia Alam and SetiaEcoPark. Now another land owner is doing a JV to a land adjacent to Setia Alam. BBCC in the centre of the city of KL is the same.

Hence, for Ecoworld land may not be that critical as long as they bring value to the projects they do.

That's why Ecoworld may be different as compared to say IOI, Sunway although they are also strong developers in their own rights.

felicity said...

Just to add, In a way think of a strong developer brand as like a strong hotel management brand. Hilton, Marriott, Intercontinental and Shangri-La do not own all the hotels where their name are on. In many cases, the hotel owners are different from the hotel managers. Example, Traders Hotel KLCC is owned by KLCC but managed by Shangri-la.

Similarly, if one owns a nice big enough land asset, they would want to approach SP Setia, EcoWorld for example. Keuro had done that before with IJM Properties as well.