Investment Highlights

• We maintain our BUY recommendation on Eastern & Oriental (E&O) with an unchanged fair value of RM2.01 per share (Exhibit 2). We made no changes to our FY19-21 earnings forecasts.

• E&O registered its 1HFY19 core net profit of RM33.2mil (+9.5% YoY), contributed by revenue recognition from the higher percentage of work progress on the reclaimed land in Seri Tanjung Pinang (STP) 2A project and higher sales of completed properties in STP1, namely the Andaman condominiums.

• Its 1HFY19 core net profit of RM33.2mil accounted for 31% and 28% of our and consensus full-year estimates. Despite making up only 31% of our full-year forecast, we reckon this to be in line with expectation as we see stronger earnings in the 2HFY19 with the progressive recognition of STP2A sale to KWAP.

• E&O achieved new sales of RM151mil (+0.8% YoY) mainly contributed by projects in Penang (59%). Meanwhile, its unbilled sales of RM399.5mil (QoQ –RM462.9mil) will be progressively recognised over FY19 and FY20.

• The company has no problem clearing its completed units with inventory level down to RM262.0mil in 1HFY19 from RM324.4mil in 4QFY18. Financial leverage is manageable with net gearing of 0.39x as compared with 0.61x in 4QFY18.

• For CY2019, E&O expects to launch two projects at premium locations in KL, namely Conlay Tower @ Jalan Conlay (high-rise residential, GDV RM900mil) and The Peak @ Damansara Heights (landed residential, GDV RM278mil).

• The key highlight for E&O is the much anticipated STP2, a masterplan which will be phased over 15 to 20 years. STP2 will be divided into three phases, namely STP Phase 2A, Phase 2B and Phase 2C. The first phase (253 acres) of reclamation works for STP2 is expected to be completed by early 2019. STP2A is expected to have a GDV of over RM17bil, which will take over 15 years to complete.

• The initial phase STP2A is targeted to be launched in midCY2019, with a GDV of about RM380mil (net saleable area of 350K sq ft.), comprising 400 units of serviced apartments (600-1,200 sq ft @ about RM850 per sq ft) and 16-20 retail lots.

• We expect STP2 to be a strong seller given its attractive seafront living concept and its location on a reclaimed island strategically located across the waters to the east of Gurney Drive and STP1.

Source: AmInvest Research - 12 Nov 2018