E&O’s acquisition of 135 acres of freehold land in Elmina West atMYR40.78 psf is deemed attractive. This new township project in the Klang Valley will yield at least an additional MYR1.5bn in GDV to thecompany’s portfolio. The acquisition also points to maiden synergistic benefits since Sime Darby becamea major shareholder in Aug 2011. Due to the RNAV enhancement, we raise our FV to MYR3.60. BUY.

• Acquired Elmina West land.Eastern & Oriental (E&O)’s acquisition of 135 acres of freehold land in Elmina West from Sime Darby (SIME MK, NEUTRAL, FV: MYR10.40) at a total consideration of MYR239.8m or MYR40.78 psf is deemed attractive, as the price includes an MYR8 psf infrastructure cost, and comes with master layout plan approval and land conversion. The residential:commercial breakdown is 70:30. The payment terms are reasonable – payments, staggered over a 5-year period, would not burden the company’s balance sheet.
• A value-added deal. We are upbeat on the acquisition as it points to the first synergistic benefits since Sime Darby became a major shareholder in Aug 2011. The land is also crucial to E&O’s long-term growth engine for its developments in the Klang Valley region, apart from its beacon project at Seri Tanjung Pinang 2 in Penang.
• At least MYR1.54bn GDV. This project will be E&O’s first township development in the Klang Valley. It is located at Elmina West, within the 5,000-acre City of Elmina. Upon completion of the Damansara-Shah Alam Elevated Expressway (DASH) in 2019, it could take only 15minutes to travel between the City of Elmina and the Penchala Link. E&O’s land is also suitable for its wellness concept plan, as it will be able to leverage on the 2,700-acre forest reserve at the fringe of its 135-acre land. The City of Elmina township also includes a 300-acre green park and 70km cycling track. Given E&O’s track record in the quality and pricing of its products, we believe the potential GDV may be higher than the baseline GDV of MYR1.54bn estimated by Henry Butcher Malaysia SB (based on historical transacted prices for surrounding properties) to derive the acquisition price. If the aggregate GDV exceeds MYR1.54bn, E&O will need to pay 20% of the enhanced GDV to Sime Darby.
• Forecasts. We make no changes to our earnings forecasts as the maiden launch of the project will be at least in two years’ time.
• FV raised to MYR3.60. Given the incremental value, we raise our FV to MYR3.60 (from MYR3.52). Maintain BUY.

Source: RHB