KEY INVESTMENT HIGHLIGHTS

• FY20 core net earnings largely within expectations

• Ended FY20 on a weaker note

• FY20 new sales at RM494.8m

• Earnings estimates revised downwards

• Maintain NEUTRAL with an adjusted TP of RM0.42

FY20 core net earnings largely within expectations. Eastern & Oriental Berhad (E&O) core net earnings of RM9.5m came in largely within our and consensus forecast of RM8m and RM8.6m respectively. Note that we have excluded mainly fair value loss on investment properties and property development costs write down in our core net income calculations. E&O has proposed dividend of 1sen per share.

Ended FY20 on a weaker note. E&O recorded core net profit of RM10m (-76.2%yoy), bringing cumulative core net profit to RM9.5m (- 87.9%yoy). The lower core net earnings were in line with lower topline of RM486.8m (-45%yoy). The weaker earnings in FY20 were mainly dragged by lower sales from ongoing development projects such as The Tamarind and Ariza Seafront Terraces in STP1 which were completed in FY19. Besides, the lower earnings were also weighed by lower contribution from hospitality segment due to temporary closure of the Heritage Wing of E&O Hotel for refurbishment. Looking forward, outlook for hospitality segment remains subdued due to Covid-19 pandemic.

FY20 new sales at RM494.8m. E&O recorded new property sales of RM135.2m in 4QFY20, lower than new sales of RM177.7m in 3QFY20. That lift total new sales to RM494.8m in FY20, higher than new sales of RM330.8m achieved in FY19. Penang contributed to 63% of E&O’s total new sales while Klang Valley and Johor contributed 33% and 4% respectively. Meanwhile, unbilled sales increased to RM150.2m in 4QFY20 from RM107.5m in 3QFY20. Looking forward, E&O will focus on its two on-going property projects namely The Conlay (GDV: RM968m) and Avira in FY21. Future launches in the pipeline include maiden launch of STP2A (GDV: RM650m) and The Peak (GDV: RM348m) which are expected to launch in 2HFY21.

Maintain NEUTRAL with an adjusted TP of RM0.42 (previously RM0.57). We revise our FY21 earnings forecast by -21.9% as we see subdued outlook for hospitality segment. We also introduce our earnings forecast for FY22. We revise our TP to RM0.42 from RM0.57 as we widened our RNAV discount from 84% to 88%. We are maintaining our Neutral call on E&O due to its uninspiring earnings.

Source: MIDF Research - 30 Jun 2020