We  maintain  our  Trading  Buy  rating  and  MYR2.60  FV.  The  company’s public  forum  last  Saturday  went  well.  We were impressed with E&O’s conceptual masterplan and settlement with the state government, which resulted in a slightly higher net land usage. E&O will next have to work out  the  funding  arrangements.  We  estimate  a  funding  commitment  of about MYR1.6-2bn for the initial phase of reclamation.   
 
- Public forum on STP2.  Last Saturday, we attended E&O’s public forum on  Seri  Tanjung  Pinang  2  (STP2),  which  attracted  a  huge turnout.  Post forum,  E&O  is  expected  to  submit  an  EIA  report  to  the  Department  of Environment.  By  1  Oct,  the detailed  environmental  impact study  (DEIA) report  will  be  put  on  public  display  for  45  days.  We  expect  the  entire approval process to take about nine months. E&O will be able to submit its building plans for the initial phase in 2H14.

- Impressive conceptual masterplan. STP2 is divided into three phases – Phase 2A, 2B & 2C. Apart from the 760 acres in STP2, E&O will also reclaim  131  acres  along  Gurney  Drive,  which  will  then  be  turned  into  a public  park  (81  acres)  and  government  reserve  (50  acres).  The remaining 60 acres that the company is required to surrender to the state government  will  be  in  Phase  2C.  Given  the  timeline,  we  expect  the reclamation of 384 acres in Phase 2A to start in late-2014 and take 2.5 years before the first launch in 2017. 

- Higher net land usage. About 12k homes will be built on STP2.  Based on the total of 891 acres (760 at STP2 and 131 at Gurney Drive), the net land  usage  is  slightly  higher  than  expected,  and  when  compared  to STP1.  As  about  344  and  163  acres  will  be  zoned  for  residential  and commercial developments respectively, the net usage is about 58%. 

- Funding. We expect E&O to carry out a rights issue exercise only  next year given our estimate of MYR1.6-2bn in funding required for Phase 2A. The total reclamation cost would amount to about MYR5.5-6bn.

- Valuations.  We  maintain  our  Trading  Buy  call  as  well  as  FV  of MYR2.60, at 35% discount to RNAV. We expect the market to gradually price  in  the  land  value  as  approvals  progress.  Again,  we  deem  the potential GO (general offer) from Sime a wild card.

Source: RHB