INVESTMENT HIGHLIGHTS

• 9MFY18 core net income within our expectation

• Earnings boosted by STP2A land sales

• 9MFY18 new sales at RM235.7m

• Maintain BUY with unchanged TP of RM2.37

9MFY18 core net income within our expectation. Eastern & Oriental Berhad (E&O) 9MFY18 core net income of RM67.4m came in within our expectation but beat consensus expectations as consensus may have underestimated the profit recognition from STP2A land sales in FY18. 9MFY18 earnings made up 79% and 87% of our and consensus full year forecast respectively.

Earnings boosted by STP2A land sales. 3QFY18 core net income climbed 46.1%yoy to RM38.5m, bringing 9MFY18 core net income to RM67.4m (+48.6%yoy). The higher earnings were mainly boosted by maiden earnings recognition from the sale of 20% reclaimed land in STP2A to KWAP as development titles of the reclaimed lands were received. Besides, the higher earnings were also partly driven by sales of completed properties and earnings recognition from ongoing projects in STP. Meanwhile, unbilled sales declined from RM622.1m in 2QFY18 to RM499.3m in 3QFY18, providing less than 1 year of earnings visibility to property division.

9MFY18 new sales at RM235.7m. E&O registered new property sales of RM86m in 3QFY18 against new sales of RM104m in 3QFY17. That brought 9MFY18 new sales to RM235.7m against new sales of RM256m in 9MFY17. 69% of the total new sales were contributed by projects in Penang, 21% contributed by UK project, 9% 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 forecast for FY18/19F. Our TP of RM2.37 is based on 60% discount to RNAV. We maintain our BUY call on E&O due to the positive prospect for STP2A. Reclamation works of STP2A is expected to complete by end 2018 while maiden launches of project on STP2A is expected to take place in mid-2019. Besides, near-term earnings of E&O are expected to be supported by profit recognition from STP2A land sale to KWAP.

Source: MIDF Research - 14 Feb 2018