- We maintain our BUY rating on Eastern and Oriental Bhd (E&O) with an unchanged fair value of RM3.90/share, based on a 15% discount to our NAV of RM4.61/share.

- Formal submission has been made to the Penang state government for the endorsement of its proposed masterplan of STP2 and reclamation notice.

- E&O expects to receive the endorsement from the state government by 4QCY14 upon the fulfilment of all the technical and regulatory requirement of STP2.

- Once the formal approval from the state government is obtained, E&O will proceed to call for tender proposal for the reclamation of STP2. Reclamation works on STP2 (Phase 1: 384 acres) is expected to begin early next year.

- On April 10, E&O had been granted a conditional approval on the detailed environment impact assessment (DEIA) study and conceptual masterplan of STP2. E&O is ready to comply with the terms and conditions set by the authorities.

- The press reported that the group has appointed local consultants familiar with local conditions and reputable international consultants with the experience and expertise of reclamation projects worldwide, to monitor that each stage of reclamation work is consistent with international standards.

- To recap, STP2 involves the reclamation of 760 acres of prime sea-front land to create manmade islands opposite its high-end residential project STP1 in Tanjung Tokong, Penang. We believe that STP2 has a very high development potential because of its strategic location, sea-fronting land, exciting development concept, and enticing architectural designs.

- From a valuation standpoint, E&O is currently trading at a steep 50% discount to its NAV of RM4.61/share. Our NAV has yet to capture any development profits from STP2. The group’s FY14F result is due for release on 23 May.

Source: AmeSecurities