INVESTMENT HIGHLIGHTS

• 1HFY18 core net income within expectations

• Earnings improved

• 1HFY18 new sales at RM149.7m

• Maintain BUY with unchanged TP of RM2.37

1HFY18 core net income within expectations. Eastern & Oriental Berhad (E&O) 1HFY18 core net income of RM28.9m was deemed within expectations despite only making up 38% and 39% of our and consensus full year estimates as we expect 2HFY18 earnings to be supported by profit recognition for STP2A land sale to KWAP.

Earnings improved. 2QFY18 core net income leaped by 246%yoy to RM15.7m from a low base of RM4.5m in 2QFY17, bringing cumulative earnings in 1HFY18 to RM28.9m (+52%yoy). The higher earnings were contributed by earnings recognition from ongoing projects namely The Tamarind, the Ariza Seafront Terrace and the Amaris Terraces in Seri Tanjung Pinang (STP). Besides, higher sales of completed projects, namely the Andaman condominium in STP and Princes House in London, have also contributed to the higher earnings. Meanwhile, unbilled sales declined from RM739m in 1QFY18 to RM622.1m in 2QFY18, providing 1 year of earnings visibility to property division.

1HFY18 new sales at RM149.7m. E&O recorded new property sales of RM65.9m in 2QFY18. That brought 1HFY18 new sales to RM149.7m, flattish against 1HFY17 new sales of RM152m. Projects in Penang contributed 62% of the total new sales, 23% contributed by UK project, 12% contributed by projects in Klang Valley while the remaining was contributed by projects in Johor.

Maintain BUY with unchanged TP of RM2.37. We maintain our earnings forecasts for FY18/19F. Our TP of RM2.37 is based on 60% discount to RNAV. We are maintaining our positive stance on E&O due to the positive long-term prospect of STP2A. Reclamation works is on-track and first launch of project on STP2A is expected in mid-2019. Meanwhile profit recognition for KWAP land sale is expected to boost earnings of E&O in FY18 and FY19. Besides, balance sheet of E&O has also stabilised with net gearing of 0.59x as at September 2017. E&O is targeting a long term sustainable net gearing of 0.5x.

Source: MIDF Research - 15 Nov 2017