KEY INVESTMENT HIGHLIGHTS

• 1HFY20 earnings below expectations

• Earnings dragged by weak progress billing

• 1HFY20 new sales at RM181.9m

• Earnings estimates reduced

• Maintain NEUTRAL with an adjusted TP of RM0.60

1HFY20 earnings below expectations. Eastern & Oriental Berhad (E&O) reported headline losses of RM10.7m in 1HFY20, mainly dampened by forex loss of RM16.2m. Core net income of 1HFY20 came in at RM5.3m (after stripping out the forex loss), which is below expectations as it makes up only 9% of our and consensus full year estimates. The negative deviation is due to lower than expected contribution from property division which was dragged by weak progress billing.

Earnings dragged by weak progress billing. E&O reported core net loss of RM3.7m in 2QFY20, due to weak progress billing from on-going projects and reduced contribution from hospitality segment. Note that hospitality segment reported operating loss of RM1.8m in 2QFY20 due to closure of Heritage Wing at E&O Hotel, Penang for refurbishment since March 2019. Meanwhile, cumulative earnings of E&O stood at RM5.3m in 1HFY20, declined by 83.7%yoy as earnings were mainly dragged by slower progress billing of development projects in Seri Tanjung Pinang (STP1) namely the Tamarind and the Ariza Seafront Terraces which were completed in FY19.

1HFY20 new sales at RM181.9m. E&O recorded new property sales of RM102.4m in 2QFY19, higher than new sales of RM79.5m in 1QFY19. Cumulative new sales in 1HFY19 stood at RM181.9m. Penang contributed 86% to E&O’s total new sales while Klang Valley and Johor contributed 12% and 2% respectively. Meanwhile, unbilled sales stood at RM51.1m. Going forward, launches in 2HFY20 includes The Conlay (GDV: RM968m) and The Peak (GDV: RM350m).

Maintain NEUTRAL with an adjusted TP of RM0.60 (previously RM0.75). We cut our earnings forecasts for FY20/21F by 45%/8% to factor in the lower contribution from property division. Correspondingly, we revise our TP to RM0.60 from RM0.75 as we widened our RNAV discount from 79% to 83%. We are maintaining our Neutral call on E&O due to its lackluster earnings outlook.

Source: MIDF Research - 29 Nov 2019