E&O’s 1QFY15 results came in below expectations but we expect astronger 2H. New sales in 1Q amounted to only MYR100m, However, assales in Avira terraces and London Princes House kick in, 2Q sales willlikely be higher. Meanwhile, Seri Tanjung Pinang 2 progresses as planned, and tender for the reclamation will be out in late 3Q. Hence,value should continue to be realised. Maintain BUY with MYR3.60 FV. 

Below expectations. Eastern & Oriental’s (E&O) 1QFY15 results came in below our and market expectations. Headline net profit fell q-o-q, as 4QFY14 net profit was lifted by a MYR10m revaluation surplus for Dua Annexe. Revenue for the property development division continued to be driven by Andaman and The Mews. 

MYR100m sales in 1QFY15. E&O achieved new sales of MYR100m, vsMYR160m in 4QFY14. This was mainly driven by Andaman, which hadreached an average take-up rate of 70% for the two blocks. We expect 2Q numbers to be stronger as the 80% bookings in Avira terraces (GDV: MYR300m) and the 20 units of apartment sold in London Princes House (about MYR150m) will be converted into sales. However, based on the timeline for property launches, we think E&O will unlikely hit its ambitious sales target of MYR1.2bn for FY15 vs MYR730m sales recorded in FY14(our FY15 sales forecast is about MYR900m-1bn). In the pipeline, the bumi-units of The Mews will be released, while Andaman Block 3 and the second batch of Avira terraces will be put into the market. The terraces will likely be priced 3-5% higher than the first batch. The combined GDV for these three projects is about MYR700m. 

Forecasts. We make no changes to our earnings forecast, as earnings in 2H are typically stronger based on its historical trend. Unbilled sales dropped to MYR715m from MYR800m in 4QFY14. 

Maintain BUY. We maintain our BUY rating and MYR3.60 FV, based on a 25% discount to RNAV. Realisation of value continues as Seri Tanjung Pinang 2 (STP2) is progressing as planned, with the consultants currently drafting the reclamation and tender document. We expect Stage A reclamation works – covering an area of 384 acres – to start in 4Q. Any JV developments and/or land disposals, which we view as another catalyst for the stock, can be locked in as early as 4Q once reclamation cost is fixed for E&O.

Source: RHB