INVESTMENT HIGHLIGHTS

• Disposing Straits Quay Mall?

• Slightly positive if the deal materializes

• Minimal impact on E&O earnings

• Maintain BUY with unchanged TP of RM2.68

Disposing Straits Quay Mall? Media reported that Eastern & Oriental Bhd (E&O) is believed to be in talks to disposing Straits Quay Mall with a convention centre for RM230m. The mall is located in Straits Quay Marina of Seri Tanjung Pinang. The mall is having net lettable area of 270,000 sq ft with occupancy rate of 80%. Meanwhile, the built-up of the convention centre is at 25,300 sq ft. The reported selling price of RM230m for the asset is close to its net book value of RM233m.

Slightly positive if the deal materializes. We are not entirely surprised by the news as E&O had previously guided they may dispose assets to pare down its borrowings. Nevertheless, we are slightly positive if the deal materializes as it would further improve the balance sheet of E&O. Assuming the proceed of disposal to be utilized to pare down borrowings, we estimate net gearing of E&O to reduce to 0.44x from 0.57x (after taken into consideration of placement proceeds and deposit for STP2A stake sales from KWAP).

Minimal impact on E&O earnings. The mall and convention centre are parked under E&O Trading Sdn Bhd and we gather that the division is not making profit. Hence, we expect the reported disposal to have minimal impact on E&O earnings (if it materializes).

Maintain BUY with unchanged TP of RM2.68. We maintain our BUY call on E&O as we are positive on the long-term prospect of E&O following the entry of KWAP as strategic investor of STP2A. The entry of KWAP as a strategic investor helps to unlock the value of STP2 project and further ensure the execution of STP2A which is an all-important project to E&O.

Source: MIDF Research - 10 Apr 2017