PETALING JAYA: Paramount Corp Bhd’s acquisition of a 21.5% stake in Eco World International Bhd (EWI) from a company controlled by tycoon Quek Leng Chan may well turn out to be a huge bargain for the property developer.
This is due to discounts and an expected dividend income from EWI that will substantially slash Paramount’s effective investment in acquiring the stake, AmInvestment Bank (AmInvest) said in a note yesterday.
Paramount’s wholly owned subsidiary, Flexsis Sdn Bhd, acquired 517 million EWI shares for RM170.61 million cash, or 33 sen per share, from GLL EWI (HK) Ltd, a unit of Quek’s GuocoLand Ltd, via a direct business transaction last Friday.
GuocoLand, a property developer listed on the Singapore Exchange (SGX), announced it had disposed its entire 27% stake in EWI for S$61 million (RM213.2 million). However, it did not reveal the buyer of the remaining 5.46% stake.
Paramount’s acquisition price was a 8.3% discount to last Friday’s closing price of 36 sen. EWI’s shares closed 2.5 sen or 6.9% higher at 38 sen yesterday, valuing the property developer at RM924 million.
More importantly, EWI aims to distribute dividends of up to RM504 million (21 sen per share) from 2024 to 2025 as part of its capital reduction plan, AmInvest noted.
“Given Paramount’s shareholding of 21.5%, this translates to an expected dividend income of RM109 million, effectively slashing Paramount’s investment cost by 64% to RM61 million for its stake in EWI.
“Based on EWI’s remaining effective gross development value (GDV) of RM4.5 billion, the cost-to-GDV ratio for a 21.5% equity stake works out to only 6%, which we deem a bargain for Paramount. The purchase price also reflects a significant discount of 49% to EWI’s net book value,” the investment bank said.
It said that since divesting its education businesses in 2018, Paramount has actively sought opportunities to diversify its earnings base through new business interests, in line with its 2020-2025 strategic plan.
“This acquisition represents a timely and strategic opportunity for Paramount to expedite its expansion plan beyond Malaysia,” it said.
AmInvest maintained its “buy” call with a higher fair value of RM1.35 per share from RM1.31 previously. At RM1.35 per share, this would represent a 255% increase from its share price yesterday.
While it appears that GuocoLand may have got the short end of the stick in this transaction, it has already reaped substantial gains from its EWI stake.
In FY2023, EWI distributed RM936 million of dividend as part of its first capital reduction exercise of RM1.5 billion issued share capital. Given its 27% stake, GuocoLand would have received a RM252.72 million dividend windfall in FY2023.
In a circular in February, EWI proposed a second capital reduction, aiming to further reduce its issued share capital by RM500 million. On the completion of this exercise, EWI targets to distribute dividends of up to RM504 million from 2024 to 2025, with a first tranche of dividends amounting to at least RM144 million.
On completion of the acquisition, Paramount’s Flexsis will emerge as the second largest shareholder in EWI, after Eco World Capital (International) Sdn Bhd with a 27% stake.
Other substantial shareholders include Liew Kee Sin, EWI’s founder and executive vice- chairman, with a 10.27% direct stake, and Sinarmas Harta Sdn Bhd with a 3.28% direct stake.
EWI is engaged in development projects in London, Sydney and Melbourne through joint ventures and subsidiaries. Over the past two years, the UK real estate market faced challenges due to high interest rates and increased cost of living, reducing the purchasing power of homebuyers.
As a result, all new launches at EWI’s remaining sites in the UK were put on hold, AmInvest noted.
“New launches will only be considered once market conditions improve, cost pressures stabilise and expected returns meet EWI’s internal requirements with greater certainty,” it said. - FMT
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