Eastern & Oriental (E&O) took us to the project site of the Sri Tanjung Pinang 2A (STP2A) recently to witness the latest progress of reclamation and also briefed us on the reclamation process and preliminary development master plan for the 253-acre island. The first bridge (i.e. Middle Bridge) is expected to be completed by Jan 2021 while the second bridge (i.e. Gurney Bridge) by October 2022. Overall completion for the reclamation is slightly above 70% and on track to be fully completed by end-2019. All told, we maintain our Neutral call for now and RM1.00 TP, pegged at c.75% discount to RNAV due to lack of re-rating catalyst in the near term.

• Land Use for STP2A. We understand that the net development land for STP2A is 166 acres of which 73 acres is residential and the remaining 93 acres is commercial. The number of residential units approved is 3,264 units while the commercial land has a plot ratio of 4x. We understand that it will unveil the new name for STP2 soon. To recap, the initial phase of STP2A is said to have a GDV of c.RM380m comprising 400 units of service apartments (600-1,200 sqft) and 16-20 retail lots which are to be launched by 1H2020. Granted, the 760-acre development is exciting and offers the opportunity for the Group to strengthen its position further as the premier developer in the country. However, we believe that until it brings in more JV partners that could offer either financial muscle or wider market reach, it would be challenging in our view to develop a project of that size on its own given current sector headwinds.

• Fund raising. Separately, it has raised about RM127.6m following a private placement exercise of 130.23m new shares at 98 sen or c. 9.1% of its enlarged share capital. The new shares were subscribed by Sweetwater SPV Sdn Bhd, a company owned by Tan Sri Wan Azmi Wan Hamzah and his wife. With the completion of the private placement exercise, the group would be embarking on the next phase of fund raising, looking at raising a minimum of RM123m under the proposed rights Issue. We understand that the latest equity raising should be enough to address the Group’s near term funding needs and the future capital requirement could either come from disposing its non-core assets (combined market price in excess of RM650m) or monetization of its STP2A via outright sale/ joint-venture.

Source: PublicInvest Research - 25 Mar 2019