- We reaffirm our BUY recommendation on Eastern and Oriental (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 significant accretion from Seri Tanjung Pinang 2 (STP2). Excluding STP2, our NAV stands at RM1.36/share.

- E&O’s near-term catalyst, i.e. the planned reclamation of 760 acres of land for STP2 is coming along well.

- The Detailed Environmental Impact Assessment (DEIA) report was submitted to the Department of Environment on Monday for approval.

- The next hurdle for the crystallisation of STP2 is the regulatory approval of the DEIA before reclamation can commence.

- Looking at the timeline (including the 45 days public display of the DEIA report), management highlighted that the regulatory approval is likely to be granted in 2QCY13.

- Reclamation works on STP2 is still on track to begin in 2HCY13, following the regulatory approval and tendering process.

- We do not expect any upcoming equity fund raising exercise for STP2’s reclamation given E&O’s:- (1) strong balance sheet with sufficient debt headroom. Net gearing stood at 30% as at 2QFY14. With a 100% debt funding assumption, gearing is estimated to increase to 0.7x in FY15F, from 0.5x in FY14F; and (2) pre-sale land or development of the landbank through joint ventures.

- Overall, we are positive on E&O’s upcoming launches. Maiden launches worth RM1.4bil are earmarked after Chinese New Year, including Andaman Edition 18 East, Avira Wellness and London Princess House.

- The maiden terrace units (208 units) at Avira Wellness are likely to be priced just under RM1.5mil, given that the first landed homes at Medini are fully-fitted units. Indicative selling prices of Princess House are £1,800psf, in our estimates, due to its prime location.

- Negotiations over the acquisition price for Elmina West (135 acres) with Sime Darby are still ongoing. Earliest launch is envisaged to happen in 2017, upon completion of the new DASH highway in 2016.

- All in all, E&O is still in the early stages of a robust earnings upswing, as development profits from STP2 is not captured yet.

Source: AmeSecurities