INVESTMENT HIGHLIGHTS

• FY17 core net income above expectations

• Ended FY17 on a positive note

• FY17 new sales at RM381m

• Maintain BUY with unchanged TP of RM2.68

FY17 core net income above expectations. Eastern & Oriental Berhad (E&O) FY17 core net income of RM78.5m was above expectations, at 126% and 150% of our and consensus full year forecast. The positive deviation was mainly due to the better-thanexpected contribution from project in UK and better-than-expected margin in 4QFY17. Final dividend of 3.0 sen is announced and this is within expectation.

Ended FY17 on a positive note. E&O achieved core net income of RM33.2m (+389%yoy) for 4QFY17. Note that we have excluded fair value gain of investment property (RM11.5m) and disposal gain of investment property (RM10.8m) in our core net income calculation. The stellar earnings in 4QFY17 was mainly lifted by sale of retail portion of Princes House in UK. That brought cumulative earnings to RM78.5m, increasing by 294%yoy. The higher earnings were driven by higher earnings recognition from on-going projects namely The Tamarind, the Amaris Terraces, and the Andorra Skyloft Terraces in STP. Besides, higher sales of completed properties also contributed to the higher earnings in FY17. Meanwhile, unbilled sales declined marginally to RM841m in 4QFY17 from RM856m in 3QFY17, providing 1.4years of earnings visibility to property division.

FY17 new sales at RM381m. E&O recorded new sales of RM125m in 4QFY17, increase from new sales of RM104m in 3QFY17. That lifts total new sales in FY17 to RM381m. 91% of the total new sales were contributed by projects in Penang while Klang Valley projects contributed 5% to the total new sales. The new sales of RM381m matched management expectation of achieving property sales of >RM300m in FY17. Looking ahead, launches that has planned for FY18 include phase two of Avira (GDV: RM90m) and first phase of Elmina (GDV: RM400m) while Conlay project (GDV: RM900m) may also be launched in FY18

Maintain BUY with unchanged TP of RM2.68. We make no changes to our earnings FY18 earnings forecast as we do not expect repeat of significant earnings contribution from UK project in FY18. We also introduce our earnings forecast for FY19. Maintain BUY call on E&O with unchanged TP of RM2.68, based on 55% discount to RNAV. We are positive on the long-term prospect for E&O following the entry of KWAP as strategic investor of STP2A which helps to unlock the value of STP2 project and further ensure the execution of STP2A

Source: MIDF Research - 24 May 2017