Eastern & Oriental (E&O) started its FY23 with a headline net loss of RM1.6m in the first quarter, dragged mainly by foreign exchange (FX) loss of RM22.8m. Stripping-out the one-off items, the Group is estimated to have recorded a net profit of RM21.2m in 1QFY23, which beat our and consensus expectations at c.62% our respective full-year estimates. Pre-sales clinched in 1Q amounted to RM207.1m, with 93% from Penang, 6% from the Klang Valley and 1% from Johor, which improved substantially compared to total RM271.3m sold in one year in FY22. Bulk of the sales was from “The Meg” in Penang which secured RM192m sales. Margins also appear to be on the higher side. Pending more clarification from management, we keep our earnings unchanged for now. Unbilled sales now stand at RM597m. All told, we maintain our Neutral call with TP unchanged at RM0.51, pegged at ~60% discount to net tangible asset (NTA) per share.

• Group property revenue rose 140.2% to RM57.4m in 1QFY23, mainly due to higher revenue recognition from the land reclamation of STP2A and the newly launched project, “The Meg”. Joint venture projects namely The Mews, Conlay, The Peak and Avira Garden Terraces contributed total revenue of RM22.9m in 1QFY23 or jumped more than 4x YoY. Meanwhile, the hospitality segment recorded revenue of RM18.4m (+7x YoY) in 1QFY23 mainly due to the uplifting of the travel ban for local and international tourists in the current financial quarter. In addition, E&O Residences was re-opened in January 2022.

• ICULS issue expected to be completed by end-2022. To recap, the Group proposed a renounceable rights issue of up to RM363m in 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. Recently, the Group revised some of the key terms on the proposed ICULS with issue price and conversion price now to be determined at later date. Also, the new issuance is now up to 1,088,359,412 ICULS based on the entitlement basis of 3 ICULS for every 4 existing shares held.

Source: PublicInvest Research - 25 Aug 2022