PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 27 Nov 2020, 11:04 AM


Eastern & Oriental Berhad - Another Weak Quarter

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Eastern & Oriental (E&O) registered another weaker-than-expected quarterly performance after registering 2QFY20 net loss of RM12.4m primarily due to lower contribution from the property development division, operating losses from its hospitality business (Heritage Wing of Eastern & Oriental Hotel closed for refurbishment) and unrealized foreign exchange (FX) losses. Stripping out the FX loss of RM16.3m, the Group’s YTD profit of c. RM5.6m just constituted 14% and c.10% of our and consensus estimates. We adjust downwards our FY20 numbers by c.65% after factoring higher operating costs and the FX losses. Sales achieved YTD were RM181.9m, with unbilled sales at only RM51.1m. Stock price performance has been disappointing so far and we believe that the overhang from the proposed rights issue will also limit stock performance near term. Granted, E&O has strategically located landbank especially STP2A but we are of the view that monetization of the land could take longer than expected in the current difficult trading environment. All told, we maintain our Neutral call but cut our fair value to RM0.75 TP (at c.70% discount to RNAV excluding STP2B&C) due to the lack of re-rating catalysts and impending rights issue.

  • STP2A completed. The reclamation works for STP2A is completed on schedule and has been handed over by the reclamation contractor. Infrastructure works in STP2A is expected to be completed by 2022, with the land envisaged to be developed over a period of 15 to 20 years. To recap, the Group plans to launch the maiden project in STP2A by mid- 2020 and the initial phase of STP2A is said to have a GDV of c.RM380m comprising 400 units of service apartments (600-1,200sf) and 16-20 retail lots.
  • RM1.5bn launches planned. The Group has plans to launch several new projects totaling c.RM1.5bn in the next 12 months which, among others, include 503 units of serviced apartments at the intersection of Jalan Conlay and Jalan Kia Peng — E&O’s second joint-venture project with the subsidiary of Japanese conglomerate Mitsui Fudosan — with an estimated gross development value (GDV) of RM968m and The Peak residential development in Damansara Heights (GDV RM350m). Conlay is expected to be launched by end-2019, and The Peak earmarked for launch in early 2020

Source: PublicInvest Research - 29 Nov 2019

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E&O 0.40 +0.01 (2.56%) 344,900 

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