Investment Highlights

• We maintain our BUY recommendation on Eastern & Oriental (E&O) with an unchanged fair value of RM2.01 per share (Exhibit 2). We made no changes to our FY19-21 earnings forecasts.

• E&O registered its 1QFY19 core net profit of RM23.3mil (+28.7% YoY), contributed by revenue recognition from the sale of the 20% reclaimed land in Seri Tanjung Pinang (STP) 2A project to Kumpulan Wang Persaraan (Diperbadankan) (KWAP) and higher sales of completed properties in STP1, namely the Andaman condominiums.

• Its 1QFY19 core net profit of RM23.3mil accounted for 22% and 17% of our and consensus full-year estimates. Despite making up only 22% of our full-year forecast, we reckon this to be in line with expectation as we see stronger earnings in the coming quarters with the progressive recognition of STP2A sale to KWAP.

• E&O achieved new sales of RM79.2mil (-5% YoY) mainly contributed by projects in Penang (64%). Meanwhile, its unbilled sales of RM462.9mil (QoQ -RM480.7mil) will be progressively recognized over FY19 and FY20.

• Its JV projects, The Mews (in KL) and Avira Garden Terraces (in Iskandar Malaysia, Johor) contributed a total revenue of RM14.1mil (-56%) in the current quarter as compared to RM32.2mil YoY mainly due to the completion of The Mews project in the previous year.

• For FY19, E&O expects to launch two projects at premium locations in KL, namely Conlay Tower @ Jalan Conlay (highrise residential, GDV RM880mil) and The Peak @ Damansara Heights (landed residential, GDV RM278mil).

• The key highlight for E&O is the much anticipated STP2, a masterplan which will be phased over 15-20 years. STP2 will be divided into three phases, namely STP Phase 2A, Phase 2B and Phase 2C. The first phase (253 acres) of reclamation works for STP2 is expected to be completed by early 2019.

• STP2A is expected to have a GDV of over RM17bil, which will take over 15 years to complete. The initial phase STP2A is targeted to be launched in 1QCY19, with a GDV of about RM380mil (net saleable area of 350K sq ft.), comprising 400 units of serviced apartments (600-1,200 sq ft @ about RM850 per sq ft.) and 16-20 retail lots.

• We expect STP2 to be a strong seller given its attractive seafront living concept and its location on a reclaimed island strategically located across the waters to the east of Gurney Drive and STP1.

Source: AmInvest Research - 21 Aug 2018