INVESTMENT HIGHLIGHTS

• Improved earnings in 1HFY18

• Reclamations work of STP2A is progressing well

• Sales target at RM350m-RM380m

• Maintain BUY with unchanged TP of RM2.37

Improved earnings in 1HFY18. We attended results briefing of Eastern & Oriental Berhad (E&O) and came away feeling reaffirmed on the long-term prospect of STP2A. To recap, 2QFY18 core net income leaped by 246%yoy to RM15.7m from 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 in STP and higher sales of completed projects.

Reclamations work of STP2A is progressing well. Reclamations work of STP2A is 91% completed as at October CY2017. First batch of land titles is expected to be issued by end of CY2017. Upon issuance of land titles, E&O will be able to book in profit for the sale of land to KWAP in FY18-19. Meanwhile, E&O plans to develop six plots of land in STP2A for first phase of development. E&O plans to launch first residential project in STP2A in mid-2019. Recall that STP2A is a 253 acres of reclamations project with potential GDV of RM17b.

Sales target at RM350m-RM380m. E&O is targeting to achieve new property sales of RM350m-RM380m in FY18, flattish against new sales of RM381m in FY17. Recall that E&O achieved new sales of RM149.7m in 1HFY18, mainly contributed by projects in Penang and UK. Looking ahead, E&O will remain focused in clearing its unsold inventory in STP and Klang Valley to drive its new sales in FY18. On upcoming project launches, Conlay Place (estimated GDV: RM900m) is expected to be launched in 4QCY2018. Note that Conlay Place is single tower design with 490 units of serviced apartments and residential units. Meanwhile, E&O plans to launch The Peak (low-rise development in Damansara Height) with estimated GDV of ~RM260m in 4QCY2018.

Maintain BUY with unchanged TP of RM2.37. Post results briefing, we maintain our earnings forecasts for FY18/19F. Our TP is unchanged at RM2.37, based on 60% discount to RNAV. We are keeping our positive stance on E&O due to positive long-term prospect for STP2A. Profit recognition for KWAP land sale is expected to boost FY18/19 earnings. Besides, asset monetization of non-core assets will help to improve balance sheet. Net gearing stood at 0.59x in September 2017, which is close to its long term sustainable net gearing of 0.5x.

Source: MIDF Research - 16 Nov 2017