- We reaffirm our BUY recommendation on Eastern and Oriental Bhd (E&O) with an unchanged fair value of RM3.00/share, based on a 35% discount to our NAV of RM4.61/share, including the signification accretion to its asset value from Seri Tanjung Pinang 2 (STP2). Stripping out STP2, our NAV stands at RM1.36/share.

- Our conviction stays: E&O’s share price re-rating cycle is still at the early stages. Regulatory approval for the commencement of reclamation works at STP2 (760 acres) is the key catalyst for its share price accretion. Institutional shareholding is still low, at just under 10% currently.

- In this report, we look at greater details of the Detailed Environmental Impact Assessment (DEIA) approval process. The cut-off period for the submission of public feedback on the DEIA study is set on 31 October, following the public dialogue held on 24 August.

- Subsequently, question raised by the public together with the responses will be collated and compiled into the DEIA report. Target submission to the Department of Environment (DOE) is in the middle of November.

- The DEIA report incorporating the comments will be on public displays for 45 days at several locations such as National Library of Malaysia, DOE Headquarters Library, all state DOEs, state libraries, Majlis Perbandaran Pulau Pinang and state police stations.

- Pending regulatory approvals on the commencement of reclamation works (expected to be granted after Chinese New Year), reclamation is envisaged to start in 2HCY14. The tendering process for reclamation can start immediately once approval is granted. Break-even land cost for STP2 is estimated at RM85psf.

- Bear in mind that the approval for the reclamation works at STP2 is not conditional upon the approval of the RM6.3bil Penang undersea tunnel project – which is critical to alleviate traffic congestion on the island. Note that 110 acres will be given to the consortium for the undersea tunnel by the state government as a payment in kind.

- Interestingly, Penang’s residential property price has been rising faster than its land value. Property prices had surged beyond RM1,000psf as evidenced by Andaman Block 2 (over 75% take-up rate), which has set a new benchmark with an average selling price of RM1,300psf. Judging by the reflating property price, selling prices of Andaman Block 3 (target launch in end-October) are estimated between RM1,300psf-RM1,500psf. The recent transacted price at Tanjong Tokong (located near STP1) that took place last year is between RM600psf-RM700psf vis-à-vis our assumed market value of RM250psf for STP2.

Source: AmeSecurities