INVESTMENT HIGHLIGHTS

• 1QFY19 earnings within expectations

• Higher earnings driven by STP2A land sales

• 1QFY19 new sales at RM79.2m

• Maintain BUY with unchanged TP of RM2.37

1QFY19 earnings within expectations. Eastern & Oriental Berhad (E&O) 1QFY19 core net income of RM23.4m came in within expectations, making up 21% and 23% of our and consensus full year estimates respectively. Note that we have excluded mainly forex loss (RM8.9m) in our core net income calculation.

Higher earnings driven by STP2A land sales. 1QFY19 core net income climbed +77%yoy to RM23.4m, mainly due to earnings recognition from the sale of 20% reclaimed land in Seri Tanjung Pinang (STP) 2A project to KWAP. Earnings in 1QFY19 were also driven by higher sales from the completed properties namely the Andaman Condominiums. Meanwhile, unbilled sales declined marginally to RM462.9m in 1QFY19 from RM480.7m in 4QFY18, providing less than 1 year of earnings visibility.

1QFY19 new sales at RM79.2m. E&O registered new property sales of RM79.2m in 1QFY19, lower than new sales of RM151.8m in 4QFY18. 64% of the total new sales in 1QFY19 were contributed by projects in Penang, 15% contributed by projects in Johor, 13% contributed by UK project, while the remaining was contributed by projects in Klang Valley. Meanwhile, new launches plan in the next one year include Conlay Tower (GDV: RM880m), The Peak (GDV: RM278m) and maiden launch of high-rise project on Plot 14 of STP2A (estimated in March - May 2019).

Maintain BUY with unchanged TP of RM2.37. We maintain our earnings forecast for FY19/20. Our TP is also unchanged at RM2.37, based on 58% discount to RNAV. We maintain our BUY call on E&O due to the firm prospect of STP2A where reclamation works are on track to be completed by end of 2018 while maiden project launches on STP2A to take place next year. Meanwhile, balance sheet of E&O is improving as net gearing level eased to 0.36x in 1QFY19 from 0.6x in FY18.

Source: MIDF Research - 21 Aug 2018