E&O’s  1QFY14  results  came  in  below  expectations.  The  weaker earnings  were  mainly  due  to  the  completion  of  the  four  blocks  of Quayside  condo  projects  in  FY13.  Property  sales  will  likely  grow stronger  from  MYR95m  in  1QFY14,  as  more  projects  will  be  rolled  out from  September  onwards.  We  maintain  our  Trading  Buy  call  and  raise our FV slightly to MYR2.70, after updating our RNAV estimate. 
 
- Below  expectations.  E&O’s 1QFY14 results came in below our and market expectations, on an annualised basis. The weaker earnings were mainly due to the progressive completion of the four blocks of Quayside condo projects in Seri Tanjung Pinang 1 (STP1) in FY13. Meanwhile, the sequential  decline  in  EBIT  was  proportionately  less  than  the  decline  in revenue, as it was boosted by a MYR20m fair value gain arising from the revaluation of Dua Annexe.  

- 1QFY14 sales of MYR95m. New property sales in 1QFY14 amounted to MYR95m. This was contributed solely by Andaman Block 1 & 2, the only launch in 1H13. Both towers have achieved a take-up rate of about 75%. Meanwhile, The Mews at Jalan Yap Kwan Seng, which was previewed in 1H13, has achieved a booking rate of more than 50%. We expect sales to  come  in  stronger  in  the  coming  quarters,  as  The  Mews,  Andaman Block  3,  Avira  Medini  and  London  Princes  House  will  be  officially launched from September onwards.

- Forecasts. We  make  no  changes  to  our  earnings  forecasts.  Near-term earnings will be underpinned by unbilled sales of MYR550m (as at July). We expect the Avira Medini project to be launched by year-end. Further delays due to approval could lead to a downward revision in our earnings forecasts.

- All  eyes  on  STP2. We  maintain  our  Trading  Buy  call.  Our  fair  value  is revised up slightly to MYR2.70 (from MYR2.60) based on 35% discount to  RNAV.  The  revision  takes  into  account  the  higher  net  land  usage  at STP2, as well as the larger share base arising from the long-term stock incentive plan (LTIP). Over the near term, news flow will likely centre on the  progress  of  STP2,  which  is  expected  to  significantly  boost  the company’s RNAV. 

Source: RHB