- We reaffirm our BUY rating on Eastern and Oriental Bhd (E&O) with an unchanged fair value of RM4.00/share, based on a 15% discount to our NAV of RM4.73/share. Our NAV model is based on a conservative assumed land value of RM250psf for Sri Tanjung Pinang 2 (STP2) and has yet to capture any development profits from STP2.
- E&O reported 1QFY15 net profit of RM20mil on the back of RM130mil in revenue.
- While 1QFY15 results account for only 14% of our and consensus estimates, respectively, we deemed this to be in line given the absence of revenue recognition from its newly launched Avira project.
- The property sales achieved in 1Q mainly comprises 60% of sales from Penang (Andaman 1H and 1F) and the remaining 40% from The Mews. Unbilled sales are solid at RM715mil, out of which about 50% comes from Penang, and the remaining from The Mews.
- Earnings momentum is expected to accelerate in the coming quarters. Contribution from Avira will come in from 2QFY15 onwards. Launched in April this year, Avira Garden Terrace had a good start – which would set the momentum for future demand –with an 80% take-up rate for Phase 1 (208 terrace units). The average selling price is currently RM680psf vs. the launch price of RM605psf.
- The second phase of the Avira Garden Terrace is expected to debut by year-end. We believe that there is room for a step-up in prices for its future launches. Prices for Meridin@Medini by Mah Sing are at an average of RM700psf, with prices at Puteri Harbour and Danga Bay already moving toward the RM900psf-RM1,000psf range.
- As for the Andaman Series, both Tower 1F and 1H achieved average take-up rates of 70%. Meanwhile, Tower 1G is expected to be launched by year-end. The group is still in negotiations for the en-bloc sale of Princess House. All the 20 units for individuals are sold. Profit recognition from Princess House will only be reflected in FY16F.
- All said, our key investment continues to premise on the NAV expansion from STP2. STP2 is progressing well as E&O is the midst of finalising the tender documents. The calling of tender will take place by November. Reclamation works is expected to begin thereafter.
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