E&O’s 3QFY23 net profit came in at RM30.1m, primarily lifted by one-off unrealised foreign exchange gain of RM14.1m. YTD, group revenue improved to RM252.8m, mainly due to the properties segment which registered an increase of RM116.6m and the hospitality segment which registered an increase of RM50.7m. Pre-sales as at 3QFY23 stood at RM824m, primarily from “The Meg”, the maiden project in STP2A. All told, we are ceasing research coverage of Eastern & Oriental (E&O) however, to reallocate our research resources to widen our sector coverage. The trading environment is likely to be challenging especially for high-end segment given economic headwinds and rising mortgage rates, limiting any significant re-rating catalysts for the Group. Capital commitment is also expected to be high due to on-going land reclamation works in Seri Tanjung Pinang. Our last recommendation for the stock was Neutral with a TP of RM0.51 based on c.60% discount to NTA.

• Revenue recovered YoY to RM252.8m currently, attributed mainly to higher sales in “The Meg”, billings from reclaimed land in STP2A (current percentage of completion is 76.2%, an increase of 12.5% from 63.7% in Dec 2021) and also improved performance from E&O Hotel, Penang (at 83.9% hotel occupancy rate, an increase from 29.7% YoY on the back of average room rate of RM691).

• Unbilled sales now at RM824m, with RM499m from “The Meg”, RM77m from KWAP land sale, RM120m from “The Peak” and the remaining RM13m from Avira Phase C. We understand that the maiden launch of the project at STP2A i.e, “The Meg” is almost sold out and the group is looking to unveil another project soon. That said, the sales of its high-end condominium project, Conlay which was launched back in 2019 is still soft though the Group is hopeful that sales could get better as more countries’ borders are opened.

Source: PublicInvest Research - 23 Feb 2023