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Eco World, its GDV and loved by CIMB, their shares still not for me.

Posted in Penang properties (mainland), and Property related

Most important for any developer would be the size of its GDV. Low GDV, low profits potential and high GDV equals to higher profits. Clear? Well, Eco World’s current GDV is now RM63 Billion. This puts in behind only UEM Sunrise and SP Setia. This is indeed something amazing considering I have never heard of Eco World few years ago. The most recent one was securing the RM7 Billion joint venture to redevelop Pudu Jail land and it’s huge 470-acre Batu Kawan land in Penang. According to CIMB, Eco World Development Bhd’s results for the nine months ended June 30, 2014 were broadly in line with the net profit making up 46% of its full year forecast. New sales from the periods of October 2013 to July 2014 already amounted to RM2 Billion which already matches full year target.

CIMB Equities Research likes Eco World because of its performance thus far. I like Eco World because of the branding that it is building effectively thus far. Have you been to some of their launches recently? Their launches have always been receiving overwhelming responses. I feel in property development, it is important that the concept is attractive but more importantly, the company must have a very strong brand. This will make people more comfortable even if market has slowed down and more people are taking a wait-and-see attitude. Look at some of the developers who said, ‘limited units available’. For your information, if there are just limited units left, there is NO NEED for the developers to post in Facebook, post online, post in newspapers and try to tell everyone. Be reminded.

Coming back to numbers, Eco World’s current profits numbers are really considered small even when compared to middle sized developers. For nine months ended June 30, 2014, the profit before tax was just RM7.68 million on the back of RM76.73 million. In other words, a margin of about 10%. Really, nothing too amazing. According to the company, lower profits were due to the completion of its Saujana Glenmarie as well as reduced launches in Iskandar Malaysia. Eco World took over a Johor developer, Focal Aims last year. Current land back that it has would now be 4,926 acres from 991 acres at the start of FY04. Sometimes, it’s hard to really understand how can such a growth be possible when there are so many bigger players before Eco World started. I think perhaps the key is ‘the right focus’ and a very good team.

Sorry, I still have no intention to buy their shares. My personal opinion about shares is that I buy my ‘blue chip’ shares and wait. However, property stocks are not my cup of tea as it is very cyclical. Perhaps I would buy their properties in the future. For now, I have no relations to Eco World yet.

written on 24 Aug 2014

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