INVESTMENT HIGHLIGHTS

• FY18 earnings above our expectation

• Earnings lifted by STP2A land sales

• FY18 new sales at RM387.5m

• Earnings forecast revised higher

• Maintain BUY with unchanged TP of RM2.37

FY18 earnings above our expectation. Eastern & Oriental Berhad (E&O) FY18 core net income of RM106m is largely within consensus expectation but came in above our expectation, making up 134% of our forecast. The positive deviation could be attributed to stronger-thanexpected sales of inventory and the faster-than-expected profit recognition from STP2A land sales in FY18. E&O proposed dividend in specie of 3 sen per share.

Earnings lifted by STP2A land sales. 4QFY18 core net income climbed 20%yoy to RM39.8m, bringing full year core net income to RM106m (+35.1%yoy). The higher earnings in FY18 were driven by earnings recognition from the sale of the 20% reclaimed land in Seri Tanjung Pinang (STP) 2A project to KWAP. Besides, higher sales of completed projects (Andaman condominiums and Princes House) also contributed to higher earnings. Meanwhile, unbilled sales declined from RM499.3m in 3QFY18 to RM480.7m in 4QFY18, providing less than 1 year of earnings visibility to property division.

FY18 new sales at RM387.5m. E&O recorded new property sales of RM151.8m in 4QFY18, stronger than new sales of RM86m in 3QFY18. That brings total new sales in FY18 to RM387.5m, marginally higher than new sales of RM381m in FY17. 65% of the total new sales were contributed by projects in Penang, 18% contributed by UK project, 10% contributed by projects in Johor while the remaining was contributed by projects in Klang Valley. Looking ahead, E&O plans to launch project with total GDV of RM1.5b over next 18 months. Projects in the pipeline are Conlay Tower (GDV: RM880m), The Peak (GDV: RM278m) and highrise project on Plot 14 of STP2A. E&O is targeting to launch maiden project on STP2A in March - May 2019.

Source: MIDF Research - 28 May 2018