A capital reduction is the process of decreasing the company’s shareholder equity through share cancellations and buybacks. Companies usually undertake capital reductions to increase shareholder value and produce a more efficient capital structure.

In this case, Eco World said the move will cushion the business from accumulated losses and provide additional headroom for further declaration of dividends in the future.

Maybank Investment Bank Bhd analyst Wong Wei Sum said while the proposed capital reduction came within his expectation, he was pleasantly surprised by the “earlier-than-expected” dividend payment of RM300 million.

He said Eco World had, for the first time, mentioned the possibility of further dividend payment post the RM900 million special dividend in 2023 from the sales of the remaining unsold property stock.

“The capital reduction will neither result in share price adjustment nor change the number of shares and cash flow, except for the estimated expenses related to the capital reduction exercise,” Wong said.

Maybank has maintained its “buy” call on the property developer, with an unchanged target price of 66 sen.

Risks to its calls were further policy tightening measures by the UK and Australian authorities, rising interest rate, competition from nearby property projects and delay in property launches.

Property developer Eco World Development Group Bhd is a major shareholder in Eco World International, which has its core property development outside Malaysia in contrast with the former which focuses on the Malaysian market.

In its first quarter ended Jan 31 (Q1 2023), Eco World International recorded a higher net loss of RM30.82 million compared with RM14.66 million in Q1 2022, mainly due to foreign exchange losses that arose from the weakening of the British pound against the ringgit.

The group pared its gains by the close, with its share price up 3.48% or 2 sen to 57.5 sen, valuing the group at RM1.37 billion.