E&O’s  3QFY14  results  came  in  below  expectations.  The  weaker earnings  were  mainly  due  to  existing  projects  still  being  in  the  early construction  phase.  9MFY14  property  sales  improved  to  MYR570m (1HFY14:  MYR350m)  and  contributions  from  Andaman  Block  3  have started kicking in.  Despite  the  weak earnings and slow property sales, the STP2 catalyst continues to underpin our TRADING BUY call.

• Below  expectations.  Eastern  &  Oriental  (E&O)’s  3QFY14  results missed our and market expectations again. The weaker earnings were mainly due to the early stage of construction of The Mews and Andaman at Quayside condominium projects.
• MYR570m  in  new  sales  in  9MFY14.  9MFY14  new  property  sales increased  to  MYR570m  (1HFY14:  MYR350m).  Apart  from  Andaman Blocks  1 & 2  and  The Mews  being key contributors,  Andaman Block 3 (Nov  2013  roll-out)  also  contributed  to  the  new  sales  numbers.  As expected,  given  the  challenging  market  conditions  and  higher MYR1,600-1,700 psf ASP, take-up rate for the latter has been slow (10% thus far). Meanwhile, the terrace homes at Avira Medini will have  their balloting next month in Johor, thus giving equal  opportunity  to potential Malaysian and Singaporean buyers. We gather that the properties, which are  fully  fitted,  will  be  priced  at  MYR1.45m  each  before  discount. Yesterday,  also  E&O  announced  its  official  launch  of  London  Princes House, which is priced at GBP1,800 psf.
• Forecasts.  In view of the weak  earnings, we  lower our forecasts by  31-24%  for  FY14-15.  FY15  earnings  should  pick  up  as  contribution  from Avira  kicks  in.  Unbilled  sales  remained  steady  at  MYR750m  vs MYR800m in the last quarter.
• Maintain TRADING BUY. We maintain our call and MYR2.70 FV, based on 35% discount to RNAV. Despite the  weak earnings and unfavourable property sales outlook, our rating is largely driven by the approval for  the Seri  Tanjung  Pinang  2  (STP2)  project  catalyst,  which  is  expected  to come  in  mid-2014.  E&O  submitted  the  detailed  environmental  impact study report to the Department of Environment on 13 Jan and a date has been set for end-February  for a panel to review the report. We do not foresee any major hurdles, except for  some minor conditions that could be added for E&O to comply.

Financial Exhibits

SWOT Analysis

Company Profile
Eastern & Oriental  E&O is a niche developer focusing on the high-end property development.  Its key flagship project is Seri Tanjung Pinang 1.  Other  landbanks  are  located in  Kuala  Lumpur  and  Iskandar  Malaysia.  It  is  the  key  property  play  to  capture  the  influx  of liquidity.

Recommendation Chart

Source: RHB