- We reaffirm our BUY recommendation on Eastern and Oriental (E&O) with an unchanged fair value of RM3.00/share, including the significant accretion to its asset value from Seri Tanjung Pinang 2 (STP2). Stripping off STP2, our NAV stands at RM1.36/share.

- Following our recent visit to the successful established township of STP1 in Penang, we continue to remain upbeat on E&O’s strong branding and growing pipeline of launches (3-year earnings CAGR of 18%).

- Our positive outlook on STP2 is maintained given its highly coveted and sizeable landbank (760 acres) and the scarcity of prime land. STP2 is now in the final stages of obtaining DEIA approval that is expected to be granted in 2Q. Notwithstanding this, there are other earnings upsides that are yet to be crystallised from STP2 development profits.

- Judging by the take-up rates and reflating prices at STP1 (60% owner occupiers), we believe that STP2 should do well. To further underscore this, the last transacted price for its terrace homes (launched in 2005) is c.RM2.2mil in the secondary market vs. its launch price of c.RM600k. The super terraces are currently selling at c.RM3mil, while Martinique bungalows are priced at above RM10mil.

- The final block of the Andaman series (Andaman Edition 18) should sell well, in our view, underpinned by the maturity of STP1, a sea-fronting view and its fully-fitted units. The expected indicative price is RM1,500psf as the average selling price for Andaman Block 2 was RM1,400psf.

- Developers and real estate players that we met in Penang opined that residential property prices in the state are unlikely to weaken and would remain firm beyond this, due to rising construction cost and scarcity of land.

- Land value has also surged significantly, particularly within the Georgetown enclave, and is hovering between RM680psf-RM700psf. The recent transacted price was RM677psf for a commercial land adjacent to Komtar.

- That said, transactions could slow down in the near-term mainly due to sentiments caused by the cooling measures and proposed Penang state levy. There is no impact on foreign buying as E&O properties are priced beyond RM1mil.

- Similar to Iskandar, the imminent entry of Beijing Urban Construction Group (BUCG) through a land swap could be a significant trigger point for the entry of Chinese investors. Foreign buyers comprise c.30% of STP1. The soaring 70% take-up rate at The Mews also underlines the increasing pool of buyers for E&O – 70% foreigners and 30% locals. This reflects wider international appeal that will further underpin demand for E&O properties.

Source: AmeSecurities