- We reaffirm our BUY conviction on Eastern & Oriental (E&O) with an unchanged fair value of RM3.00/share – based on a 35% discount to our NAV of RM4.61/share, as we factor in significant accretion from Seri Tanjung Pinang 2 (STP2). Excluding STP2, our NAV stands at RM1.36/share.

- Our investment thesis remains as E&O’s share price is positioned to get a significant kick from the crystallisation of STP2 given the tripling in NAV. This is subject to regulatory approval for the Detailed Environmental Impact Assessment (DEIA) for the reclamation of STP2 (760 acres), which is likely to materialise after Chinese New Year.

- The group is in the midst of compiling and responding to public’s feedback on the DEIA. Target submission to the Department of Environment (DOE) is by year-end. Note that the regulatory approval is not conditional upon the approval of the Penang undersea tunnel.

- E&O’s 1HFY14 core net profit of RM44mil is deemed to be in line with expectations, although only accounting for 31% of our fullyear estimates and 34% of consensus.

- The lower revenue on YoY and QoQ basis were due to lower recognition from current projects (Andaman Tower 1 & 2 and The Mews) which are in the early stages of development.

- 1HFY14 new property sales increased to RM350mil (2QFY14: RM250mil, 1QFY14: RM100mil) vs. RM230mil in 1HFY13. The bulk of this came from The Mews (launched in September) which saw a soaring 70% take-up rate at an average selling price of RM1,700psf.

- Unbilled sales as at October stood at RM750mil, compared to RM800mil in September, and RM550mil in August.

- Moving into 2HFY14, pre-sales momentum is expected to accelerate with c.RM1.4bil worth of new launches that could be put in the market as early as next month. These include Andaman Edition 18 East, Avira Wellness in Iskandar and London Princess House.

- Profit recognition could be lumpy in the 2HFY14 but is expected to be stronger supported by:- (1) Andaman Edition 18 (30% construction stage), which should sell well given the maturity of STP1, sea-fronting view, fully-fitted units and it is the final block of the Andaman series; and (2) Maiden foray into London with Princess House. It should do well given its strategic location in Central London (12 months profit recognition).

- We also expect the imminent debut of terrace units at Avira Wellness in Iskandar by December at an estimated price of over RM1mil/unit. Leveraging on an overwhelming 12,000 registrations, marked increase in Singaporean buyers, and the close proximity to Pinewood Studio, we firmly believe that the project will be soldout.

Source: AmeSecurities