KUALA LUMPUR (April 30): Eco World International Bhd (KL:EWINT) (EWI), which was established in 2013 to focus on overseas property development, is planning to expand its geographical footprint to Malaysia, amid headwinds it faced in the UK and Australia since the onset of the Covid-19 pandemic.
Announcing the new business direction in a statement on Wednesday, EWI said the move necessitates the termination of its existing collaboration agreement with its single largest shareholder Eco World Development Group Bhd (KL:ECOWLD) (EcoWorld Malaysia) that restricts EWI from undertaking property projects in Malaysia, and a proposed name change for the company to EWI Capital Bhd. EcoWorld Malaysia holds a 29% stake in EWI.
The decision comes after EWI faced supply chain disruptions, high energy prices, tight labour markets and elevated mortgage rates that continue to constrain the purchasing power of homebuyers in the UK and Australia, where it has been operating. The group has, as at Feb 28, completed the development of 10 projects in the UK and two in Australia, with cumulative sales of RM19 billion.
Terminating the collaboration agreement with EcoWorld Malaysia, which also stipulated that EcoWorld Malaysia would not expand overseas unless via EWI, will remove the geographical restriction previously agreed between EWI and EcoWorld Malaysia. It would also end the brand licensing arrangement that allowed both parties to use the 'EcoWorld' brand.
"In line with that and to avoid any market confusion with EcoWorld Malaysia once EWI actively enters the Malaysia market, the company's name is proposed to be changed to EWI Capital Bhd," the statement read.
These proposals will be presented to EWI shareholders at an upcoming extraordinary general meeting. EcoWorld Malaysia will also seek its shareholders' approval to terminate the collaboration agreement.
EWI said the new direction is driven by Malaysia’s stable economic outlook and more favourable accounting rules for revenue recognition, which allow income from property development to be booked progressively, and the management’s familiarity with the domestic market.
In contrast, revenue in the UK and Australia is recognised only upon completion and handover of units, causing long timing gaps between new launches and revenue recognition, which will weigh on its financial performance.
EWI president and chief executive officer Datuk Teow Leong Seng said exploring new investment and development opportunities in Malaysia is the "best way forward" for the company while maintaining its presence in the UK and Australia, which will give it flexibility to launch EWI's remaining sites when market conditions improve.
He also highlighted the possibility of future collaborations with EcoWorld Malaysia, such as getting EcoWorld Malaysia to provide development management services, given that EWI does not currently have its own team here.
To raise funds for its new ventures, EWI plans to monetise certain long gestational property assets over the next 18 to 24 months. "Combined with our zero gearing position and the gradual cash build-up from the sale of our remaining completed stocks, we are well-positioned to explore new investment and/or development opportunities," Teow said.
EcoWorld Malaysia stands to benefit from EWI's new business direction, says CEO
Expressing support for EWI's new strategic direction, EcoWorld Malaysia president and CEO Datuk Chang Khim Wah said EcoWorld Malaysia, as its major shareholder, stands to benefit from EWI's efforts to pursue a more robust business strategy. "Acceleration of income recognition by EWI will help to protect and potentially enhance the value of its shares, thereby safeguarding the value of our 29% stake in the company," said Chang.
He also indicated that the removal of geographical restrictions would allow EcoWorld Malaysia to explore overseas ventures directly, potentially including Singapore. Likewise, he foresees opportunities for future collaborations with EWI, including joint ventures.
To avoid potential conflicts of interest arising from both companies operating in the same market, Tan Sri Liew Kee Sin and Datuk Heah Kok Boon have voluntarily resigned from EWI's board, with immediate effect. Liew is the executive chairman of EcoWorld Malaysia, while Heah is an alternate director. Following their resignation, EcoWorld Malaysia will de-recognise its stake in EWI as an associate company and treat it as a simple investment.
The second largest shareholder in EWI is Paramount Corp Bhd (KL:PARAMON), another seasoned property developer with a focus on Malaysia. It acquired a 21.54% stake in EWI in May last year from a unit of Guocoland Ltd, which is controlled by tycoon Tan Sri Quek Leng Chan, for RM170.61 million or 33 sen per share. At the time, Paramount said the acquisition was to accelerate its overseas expansion and diversification.
EWI's share price closed one sen higher at 21.5 sen on Wednesday, bringing the group a market capitalisation of RM516 million, while EcoWorld Malaysia settled two sen higher at RM1.88, valuing it at RM5.58 billion.
Paramount’s shares closed unchanged at RM1.05, giving the group a market capitalisation of RM654 million.