Eastern & Oriental (E&O) registered 4QYFY20 net loss of RM204.0m, which was largely dragged by its asset impairments (c.RM209.6m written-off), especially from its overseas assets. Excluding one-off items, the Group’s net profit for the year is estimated at c.RM15.9m which was above our and consensus estimates. Group revenue declined 45.1% YoY due to lower revenue from on-going projects such as The Tamarind and Ariza Seafront Terraces in STP1 which were completed in FY19 and lower revenue recognition from the land reclamation in STP2A. The hospitality segment also registered lower revenue with a decrease of RM20.9m due to the temporary closure of the Heritage Wing of Eastern & Oriental Hotel for refurbishment. The Group achieved a slightly higher yearly sales of RM494.8m vis-à-vis RM330.8m a year ago with unbilled sales stood at c.RM150m. All told, we adjusted our FY21-22 downwards by -13%/-48% due to latest change of planned project launches. We expect its profit to be higher in FY2021 due to gains from land disposal and also residual billings from the KWAP land sale which has unbilled revenue totaling RM138m. Maintain Neutral call and fair value of RM0.50 TP (at c.70% discount to RNAV excluding STP2B&C) due to the lack of re-rating catalysts.

• FY20 revenue largely from inventory sale. Group revenue in FY20 was mainly from sale of inventory in Penang. Recognition of revenue from sales of STP2A land was only RM49.6m due to progress of works at site with 53.5% completion achieved as at 31 Mar 20 compared with 47.0% a year ago. Hospitality revenue dropped due to temporary closure of Heritage Wing of the E&O Hotel for refurbishment from March–December 2019. We understand that Heritage Wing was reopened on 20 December 2019.

• Launches worth in the pipeline. The Group is looking to launch 2 projects in 2HFY21 i.e. STP2A (Maiden launch with RM650m GDV) and The Peak (JV with Mitsui Fudosan, RM348m GDV). As for The Conlay (RM968m GDV), we understand that it has since sold 69 units worth RM136m to date. Separately, we understand that the Group has successfully reduced unsold inventories further with only c.RM48m worth remaining from the high of RM455m in FY17.

Source: PublicInvest Research - 30 Jun 2020