INVESTMENT HIGHLIGHTS

• 9MFY19 earnings below expectations

• Lower earnings in 9MFY19

• 9MFY19 new sales at RM250.9m

• Maintain NEUTRAL with a revised TP of RM0.95

9MFY19 earnings below expectations. Eastern & Oriental Berhad (E&O) 9MFY18 core net income of RM36.6m came in below expectations, making up only 39% and 41% of our and consensus full year estimates.

Lower earnings in 9MFY19. 9MFY19 core net income decreased by 45.7%yoy to RM36.6m, mainly owing to lower revenue recognition on ongoing project and higher tax rate of 62% in 9MFY19 against tax rate of 42% in 9MFY18. Besides, earnings were also dragged by provision of RM44.6m being the holding cost for option to purchase land which has lapsed. Meanwhile, unbilled sales declined to RM282.4m in 3QFY19 from RM399m in 2QFY19, providing less than 1 year of earnings visibility.

9MFY19 new sales at RM250.9m. E&O recorded new property sales of RM100m in 3QFY19, higher than new sales of RM71.8m in 2QFY19. That brought total new sales to RM250.9m in 9MFY19. 61% of the total new sales in 9MFY19 were contributed by projects in Penang, 25% contributed by projects in Klang Valley, 10% contributed by projects in Johor while the remaining was contributed by projects in UK. Meanwhile, plans to launch project with total GDV of RM1.5b over the next two years remain intact. Key projects in the pipeline are The Conlay (GDV: RM900m), The Peak (GDV: RM278m) and maiden launch of high-rise project on Plot 14 of STP2A (GDV: RM380m).

Maintain NEUTRAL with a revised TP of RM0.95. We cut our FY19/20 earnings forecasts by -19%/-7% to take into account of the higher than expected tax rate. Correspondingly, we cut our TP for E&O to RM0.95 (previously: RM1.22) as we widen our RNAV discount to 75% from 68% in view of the weaker earnings visibility. We maintain our Neutral recommendation on E&O as we see neutral near-term prospect for E&O.

Source: MIDF Research - 25 Feb 2019