Positive Surprise

Eastern & Oriental’s (E&O) FY17 result was a positive surprise. Reported net profit of RM87.7m (+138% yoy) in FY17 was 70% above consensus forecast of RM51.7m and 54% above our estimate of RM57m. We cut our EPS forecasts by 3-13% in FY18-19E to reflect the higher progress billings in FY17 and lower in subsequent years. We reiterate our BUY call with a reduced RM3.00 target price (RM3.05 previously), based on 50% discount to RNAV.

Surge in Earnings

Revenue jumped 67% yoy to RM705m in FY17 driven by higher progress billings on its UK and domestic property development operations, benefiting from the record high total sales of RM1.1bn in FY16. The sale of retail space in Princes House, UK and its inventories in The Mews and Andaman condominiums contributed to the surge in revenue. EBIT increased nearly three-fold to RM133m in FY17 on the back of the surge in revenue. But net profit increased by a slower 138% yoy to RM87.7m in FY17 due to lower one-off gains and unrealized forex loss.

Better Quarter Earnings

Net profit in 4QFY17 jumped two-fold to RM49.4m on higher operational profit and net exceptional gain of RM13.1m. E&O recognized a net fair value gain of RM14.3m for its Princess House 34-unit service apartment investment property in 4QFY17. Core net profit was down 12% yoy to RM33.7m in 4QFY17. E&O recorded sales of RM381m in FY17 and unbilled sales stands at RM841m at end-FY17. It plans to launch the Conlay Place, Elimina and Avira Terraces Phase 2 in FY18.

Earnings Cut

We cut our earnings forecasts by 3-13% yoy in FY18-19E as progress billings was accelerated in FY17, lowering the amount to be recognized in subsequent years. However, our earnings forecasts does not include the potential RM244m land sale gain for the proposed sale of 1.45m sq ft net land in Seri Tanjung Pinang Phase 2A (STP2A) to KWAP, which is expected to be recognized in FY18-19E.

Long-term BUY

We trim our RNAV/share estimate and target price by 2% to RM6.00 and RM3.00 to reflect the lower earnings in FY18-19E. Maintain our BUY call. Execution risk for the STP2A project is the key risk to our call.

Source: Affin Hwang Research - 24 May 2017