CEO Morning Brief

E&O Sees Rights Issue, Future Sales Supporting Phase 2 Andaman Island Capex Outlay

Publish date: Thu, 23 Feb 2023, 08:42 AM
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TheEdge CEO Morning Brief
E&O managing director Kok Tuck Cheong (left) and executive chairman Datuk Tee Eng Ho (Photo by Low Yen Yeing/The Edge)

KUALA LUMPUR (Feb 22): Eastern & Oriental Bhd (E&O)’s high borrowings is of minimal concern to the property developer, as the group sees its latest fundraising proposal and cash generated from sales supporting its next stage of growth.

The group, which is seeking additional funds for the second phase of its 760-acre Andaman Island project, expects to have around RM500 million cash in hand next year despite downsizing its rights issue that was first proposed in February 2022.

At E&O’s results briefing, its managing director Kok Tuck Cheong said he is confident that the group’s rights issue of irredeemable convertible unsecured loan stocks (ICULS) will be fully subscribed to achieve its new target of RM255 million in fresh capital.

Topped off by continued sales from its property segment and revenue from its hospitality segment, Kok said the group should have RM500 million cash by next year.

The group had gross borrowings of RM1.29 billion and RM186.31 million in cash at end-December. Against equity of RM1.83 billion, gross gearing stood at 0.7 times.

E&O proposed to part-fund the project with the issuance of three ICULS for every four E&O shares held at 23.5 sen apiece.

The ICULS have a tenure of five years, a coupon rate of 3.8%, and a one-to-one conversion price of 23.5 sen. The rights, which started trading on Tuesday (Feb 21), last traded at 3.5 sen apiece.

This compares with E&O’s last traded share price of 30.5 sen, which gave it a market capitalisation of RM450.41 million. The group previously proposed a one-for-two issuance of the ICULS at 50 sen apiece, to raise up to RM362.78 million.

On the Andaman Island project, E&O executive chairman Datuk Tee Eng Ho said it expects to lay out RM200 million in capital expenditure for the second phase of Seri Tanjung Pinang (STP) in FY2024.

Tee said that developments on Andaman Island Phase 1 are projected to provide RM17 billion in gross development value (GDV) over the next 15 years.

E&O has already completed the 253-acre Phase 1 of the reclamation, while the 507-acre Phase 2 is expected to be completed by December 2028, according to Kok.

3Q profit sees near four-fold jump, carried by Andaman Phase 1 maiden launch sales

For the third quarter ended Dec 31, 2022 (3QFY2023), E&O’s net profit leapt near four-fold to RM30.09 million from RM7.83 million a year earlier on the back of a surge in revenue.

Quarterly revenue ballooned over three-fold or 247.32% to RM81.2 million as compared to RM23.38 million previously, carried by higher sales of the Andaman Phase 1’s maiden launch, The Meg — 1,020 units of serviced apartments and 14 shop lots — as well as revenue recognition on the reclaimed land.

It is also worth noting that its hospitality segment's revenue contribution surged 305.4% to RM50.7 million versus RM16.6 million a year prior, mainly due to higher occupancy rates and average room rates.

In the nine months ended Dec 31, 2022 (9MFY2023), E&O returned to the black with a net profit of RM28.45 million as compared to a net loss of RM15.26 million a year prior. Cumulative revenue leapt 201.69% to RM252.77 million from RM83.79 million previously.

Touching on its prospects, E&O said The Meg is more than 95% taken up since it started selling the project in January 2022.

The group said it is excited about its upcoming launches given the strategic locations and well-accepted offerings.

“While Penang will form the bulk of our future launches, the hospitality segment is enjoying historically high occupancy rate and average room rate on the back of a continued strong recovery in tourism and business travel,” it added.

Beyond FY2023, Tee pegged a sales target of RM500 million for FY2024.

Source: TheEdge - 23 Feb 2023

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