Eastern & Oriental (E&O) recorded an FY22 net profit of RM68.1m, lifted mainly by reversal on impairment of assets, gain in value of investment properties though mitigated by foreign exchange (FX) loss of RM23.2m. Stripping-out the one-off items, Group net loss in FY22 is estimated at RM37.1m, which is still below our and consensus full year estimates. We understand that revenue recognition on reclaimed land in STP2A is currently at 66%, an increase of about 8% from March 2021. Sales achieved in FY22 were RM271.3m, with 82% from Penang, 9% from the Klang Valley and 9% from Johor. Unbilled sales as at 4QFY22 stood at RM455m which will be progressively recognized over the next 3-4 years. Its maiden project in Andaman Phase 1 i.e. “The Meg” has been soft-launched and said to have achieved 60% sales since January 2022. All told, we maintain our Neutral call with TP unchanged at RM0.60, pegged at ~70% discount to RNAV, excluding STP2B&C.

• Group revenue dropped 54% YoY to RM140.5m mainly due to sale of land parcels of RM98.3m in the previous financial year and lower sales of completed properties of RM70.4m during the current financial year. The hospitality segment recorded revenue of RM27.9m in FY22 or an increase of 83.5% YoY mainly due to higher revenue generated as the interstate travel ban had been lifted for local tourists. We understand that E&O Hotel occupancy improved to 35.7% in FY22 from 18.2% in FY21. In recent weeks, we understand that occupancy has hit as high as 80%.

• ICULS issue expected to be completed by end-2022. To recap, the Group proposed a renounceable rights issue of up to RM363m in nominal value of 5-year 3.80% irredeemable convertible unsecured loan stocks (ICULS) at 100% of their nominal value of RM0.50 each, on the basis of 1 ICULS for every 2 existing ordinary shares in E&O. Assuming a maximum scenario, it plans to utilize 80% of the proceeds to embark on several new development projects and reclamation of Andaman Phase 2B and 2C. We understand that the fixed funding cost of 3.8% per annum (p.a.) is comparable to the Group’s current average borrowing cost of 3.77% p.a. The exercise is expected to be completed by 4QCY22.

Source: PublicInvest Research - 26 May 2022