- We maintain our BUY recommendation on Eastern & Oriental (E&O) with a lower FD fair value of RM2.78/share (vs. RM3.55share earlier), based on an unchanged 50% discount to our FD NAV.
- The downward revision in our fair value takes into account our more conservative implied land value assumption of RM400psf (vs. RM500psf previously) for its soon-to-be-reclaimed Seri Tg. Pinang 2 (STP 2) development in Penang to reflect a weaker property market sentiment.
- Newsflow momentum is expected to pick up in the coming months in relation to STP2. The reclamation tender was completed on 11 May with four contractors shortlisted. Following this, we expect E&O to award the reclamation job and reclamation works by 2H 2015.
- 1QFY16 earnings rose 23% YoY to RM23mil, with unbilled sales inching up from RM868mil as at end-March 2015 to ~RM908mil as at end-June 2015 (+5% QoQ). Key sales drivers for the quarter were the initial phases of The Tamarind (in STP1) and Avira Terrace in Iskandar Malaysia, which accounted for a bulk of new sales achieved during the quarter (RM585mil). Both projects achieved overall take-up rates of over 90%.
- For the second half of this year, upcoming pipeline launches may include Tower B of The Tamarind, Avira Terrace Phase 2 and an upcoming development in Jln Conlay.
- Our main thesis for E&O continues to centre on the group’s ability to crystallise the deeply embedded value of STP2, as it monetises the land after the award of the reclamation contract. This will help surface the infrastructure/reclamation cost for STP2, and set a benchmark price for future prolific deals within the prime sea-fronting development.
- Next up, the sale of selective land parcels is expected to come through within the next six months, and help stimulate renewed buying interest on the stock.
- Our BUY conviction continuous to centre on the highlycoveted STP2, and by extension, its significant accretion to NAV. STP2 accounts for a significant 81% of its GAV. On its revised estimates, the stock is trading at a steep discount of 73% to its NAV.
- The group aims to complete the proposed listing of its UK property unit in London by 4Q 2015/1Q 2016, and raise minimum gross proceeds of ₤36mil (~RM241mil).
Source: AmeSecurities Research - 25 Aug 2015
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