KEY INVESTMENT HIGHLIGHTS

• 9MFY20 earnings below expectations

• Weak earnings in 9MFY20

• 9MFY20 new sales at RM359.6m

• Earnings estimates revised downwards

• Maintain NEUTRAL with an adjusted TP of RM0.57

9MFY20 earnings below expectations. Eastern & Oriental Berhad (E&O) 9MFY20 core net income of RM0.3m came in below expectations as it makes up only 1% of our and consensus full year estimates respectively. The weaker-than-expected earnings could be attributed to the subdued earnings in 3QFY20. E&O reported core net loss of RM5.1m in 3QFY20 after stripping out forex gain of RM23m.

Weak earnings in 9MFY20. E&O remained in the red in 3QFY20, recording core net loss of RM5.1m in 3QFY20 against core net loss of RM3.7m in 2QFY20. That dragged cumulative core net earnings to RM0.3m in 9MFY20, declined sharply from net profit of RM36.6m in 9MFY19. Earnings were weak in 9MFY20 due to absence of new launches to support earnings and as progress billing of development projects in Seri Tanjung Pinang (STP1) was low. Besides, hospitality segment was in the red by recording operating loss of RM6.4m in 9MFY20 due to closure of the Heritage Wing at E&O Hotel for refurbishment. Nevertheless, the Heritage Wing was reopened for business in December 2019.

9MFY20 new sales at RM359.6m. E&O registered new property sales of RM177.7m in 3QFY20, higher than new property sales in 2QFY20 of RM102.4m. That brought cumulative new sales to RM359.6m in 9MFY20. Penang contributed to 67% of E&O’s total new sales while Klang Valley and Johor contributed 28% and 5% respectively. Meanwhile, unbilled sales increased to RM107.5m in 3QFY20 from RM51.1m in 2QFY20. Meanwhile, E&O launched The Conlay (GDV: RM968m) in 4Q2019. Looking ahead, E&O targets to launch The Peak (GDV: RM348m) in 2H2020 and maiden project on STP 2A in 1Q2021.

Maintain NEUTRAL with an adjusted TP of RM0.57 (previously RM0.60). We cut our earnings forecast for FY20/21F by 78%/45%. Correspondingly, we revise our TP to RM0.57 from RM0.60 as we widened our RNAV discount from 83% to 84%. We are maintaining our

Neutral call on E&O due to its lackluster earnings.

Source: MIDF Research - 19 Feb 2020