We raise our fair value to MYR3.00, and upgrade the stock to Buy. The highly anticipated Seri Tanjung Pinang 2 masterplan is expected to excite the market. We now raise our land price assumption to MYR360 psf, as the payment-in-kind by the state government to the contractors is likely to value the land at MYR350-400 psf. Meanwhile, we look forward to the new set of KPIs that will be released on 27th May.

♦  STP2 the key impending catalyst. We were hosted by Christina Lau, Head of Sales, Penang. As expected, quality, design and landscaping of the waterpark at Quayside is impressive. We raise our land price assumption for STP2 to MYR360 psf (from MYR330 psf), as we believe the land is now worth more based on our conversion with the industry players during our trip. The state government is also likely to tag a high price for the land as payment in lieu for the infra works on the island. The release of the STP2 masterplan to the public some time in 3Q will excite the market. E&O’s valuations will be lifted in 2H13 as market skepticism 
on STP2 fades.  

♦  New set of KPIs mapping out future strategies. In conjunction with the upcoming release of 4Q results on 27th May, management will release a new set of KPIs for the next three years. Compared to the previous combined PATAMI target of MYR250-300m for FY12-13, we estimate a PATAMI target of MYR450-500m for the next three years (or MYR145-160m p.a.), suggesting an average earnings growth of at least 15% p.a..

♦  Brisk sales for The Mews. The brand building effort continues to pay off. E&O marketed The Mews in Hong Kong lately, and the project has received a booking of 50% just from the HK buyers alone. Average selling price of MYR1,700 psf is also above our expectation. We believe that bookings will be converted into sales over the next few months, and it should be easy for E&O to sell the remaining units in other countries, such as Japan and Singapore, given the overseas platform that it already has. Meanwhile, Avira at Medini will be launched in 2H. We expect the initial 200 units of linked houses to be fully taken up. Additional sales of MYR200m will be easily achieved.

♦  Upgrade to BUY. Given the imminent catalyst and our revised land price assumption, we raise our fair value to MYR3.00 (from MYR2.08), at a lower 25% discount to RNAV (from 40%). We upgrade the stock to BUY.

Source: RHB