PETALING JAYA: Maybank Investment Bank (IB) Research is generally positive on Paramount Corp Bhd’s recent share acquisition of Eco World International Bhd (EWI), commenting that the former is supportive of growth.
Late last week, Paramount had, through its wholly-owned subsidiary Flexsis Sdn Bhd, emerged as a major shareholder of EWI after acquiring a 21.54% stake for RM170.6mil in cash.
In a note to clients yesterday, Maybank IB Research said Paramount considers its investment in EWI as a strategic planning move and that it is not discounting increasing its stake in the latter if there is fundraising for projects at a later stage.
“The strategic investment is in line with Paramount’s intention to diversify and expand its overseas portfolio as well as income streams.
“Additionally, Paramount may also collaborate with the other major shareholder of EWI, Eco World Development Group Bhd (EcoWorld Malaysia), in the domestic property market,” said the research house.
Maybank IB Research said that on top of the challenging property market in the UK over the last few years, it suspects the stumbling block in EWI’s advancement was also due to the difference in management styles between the two major shareholders, EcoWorld Malaysia and Guocoland (M) Bhd.
It pointed out that EcoWorld Malaysia is more aggressive in project launches and land banking while GuocoLand is more conservative.
“The entry of Paramount, which appears to be pro-growth and is positive on the UK property market, could lead to more active launches in new units by EWI from now onwards,” said the research firm.
It reported that EWI is maintaining its commitment to its dividend payment of RM504mil, or 21 sen per share, between financial year ending October 2024 (FY24) and FY25, despite the change in shareholding structure.
Paramount group chief executive Jeffrey Chew commented last week that with the expected dividend payout, the group is effectively putting RM62mil net in terms of investment for the acquisition, which is 80% financed by the bank.
“Basically, we are only putting in RM12mil equity for this deal. So we expect a high internal rate of return over the coming years because our equity placement is only RM12mil,” he said.
To note, Maybank IB Research said any earnings contributions from Paramount’s move would only come in FY27 and FY28, even if there are new launches in FY25, as profit would only be recognised upon handover of the units.
Hence, it predicts that EWI would remain in losses in the medium term.
The research house is maintaining its “hold” call and 12-month target price of 29 sen on the counter.