1. SERI TANJUNG PINANG PHASE 2

 Initiated Price : RM1.40          Target Price : RM2.80

The waiting or gestation period is over. The harvesting phase has begun. 

                           Figure 1: Seri Tanjung Pinang Phase 1 and 2 

The jewel in the crown of E&O is The Seri Tanjung Pinang Project. The Phase 2 of the project involves the reclamation of 2 islands measuring 760 acres. The physical reclamation work commenced in 2015 and after 3 years, we start to see the fruit of the hard work.

The 1st island of STP2 measuring 250 acres has been fully reclaimed. During the course of reclamation, the management has strategised to sell part of the 1st island. 20% of the development land has been monetized and sold to KWAP at the price of about RM550 per square feet. Profits from the sales will be recognised within the next two years progressively according to the infrastructure milestones constructed. 

Infrastructure and accessibility are paramount to the success of the project. The construction work of the bridge linking the mainland to the island has commenced and is scheduled to be completed by 2020. Furthermore, the first development in the island will be launched within 6 months to 9 months from now. 

When all these happened, the investors can visualize and compute the real value s of the whole development. E&O share price will be on uptrend mode inline with the increase in awareness of the investing community on the expected gross development Values (GDV) of the development.

2. The Sime Property Dilemma - What To Do With Its Investment In E&O? 

On 27/9/2016, Sime Darby sold 10% of its 22.2% shareholdings in E&O at RM2.45 per share. One of the reasons may be the investment was in an opposition state. However, Pakatan Harapan has won GE14 and Penang is now ruled by the ruling party. Should Sime Property relook into its investment strategy in E&O? The answer should be "Yes". Sime Property should revisit its strategy and what they should do with its remaining investment of 11.57% in E&O?

Keeping 11.57% and being a passive investor in E&O is meaningless to Sime Property judging from its huge size. Sime Property has to either sell the shareholdings away or increase its stakes. Sime Property bought the shares about 5 years ago at RM2.30 a share. It means Sime Property will be making losses if they sell them away at the current price. They also risk being looked "foolish" when the share price climb to a much higher level in the next few years if they have chosen to divest its shareholdings. 

Why had Sime Property bought into E&O at RM2.30 a share in 2013 in the first place? They must have hired professionals to calculate, performed due diligence and found out that it worth more than RM2.30 a share. I think Sime Property should take advantage of the current low price level to increase its stakes or even talk to Lembaga Tabung Haji if the fund intends to sell its stakes. From the Bursa Malaysia announcements, Lembaga Tabung Haji was seen reducing its shareholdings in the open market recently. A block purchase will be a quick way to increase Sime Property's stakes in E&O. However, a big premium is anticipated judging from the previous few block purchases transacted. There are more than one party who would like to buy if a block sale is available.