Eastern & Oriental (E&O)’s 3QYFY20 net profit came in at RM18.8m, mainly driven by an unrealised exchange gain (FOREX) of RM23.1m. Excluding one off items, the Group’s net loss for the quarter is estimated at c.-RM4.3m which was below our and consensus estimates. YTD, Group net profit of RM1.3m only constituted c. 9.2% and 5.0% of our and consensus estimates due to lower than-expected contribution from the property development division and operating losses from its hospitality business (Heritage Wing of Eastern & Oriental Hotel closed for refurbishment). Sales of RM359.6m achieved YTD 3QFY20 rose slightly as compared to RM251.0m a year ago, while unbilled sales also rose to RM107.5m (from RM51.1m in 2QFY10). All told, we adjust our FY20 net profit downwards by 42% after assuming higher costs and one-off items. We expect its profit to recover in FY2021 due to rising unbilled sales and also residual billings from the KWAP land sale which has unbilled revenue totaling RM357m. We maintain our Neutral call and fair value of RM0.75 TP (at c.70% discount to RNAV excluding STP2B&C) due to the lack of re-rating catalysts.

• Operationalising STP2A. To recap, reclamation works for STP2A is already completed 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. The Group plans to soft-launch the maiden project in STP2A by mid-2020, with target to officially unveil it by fourth quarter FY2021. The initial phase of STP2A is said to have a gross development value (GDV) of c.RM380m comprising 400 units of service apartments (600-1,200sf) and 16-20 retail lots.

• Other launches worth RM1.3bn. The Group has launched The Conlay, with estimated GDV of RM968m in 4QCY2019. We understand that sales achieved so far were at RM82m, with the Group working to close more bookings (mostly foreigners) that has been impacted recently by the COVID-19 outbreak. Separately, the Peak residential development in Damansara Heights (GDV RM348m) is earmarked for launch in 2H 2020. As for completed units, the Group has successfully reduced unsold inventories by c.81% from the high of RM455m in FY17 to RM87m currently.

Source: PublicInvest Research - 19 Feb 2020