• Maintain BUY, with new TP of MYR0.50 from MYR0.59, 19% upside. Eastern & Oriental’s 2QFY23 (Mar) results came in above expectations. New project The Meg and land sale lifted earnings during the quarter. 1HFY23 property sales already hit MYR390m, driven by The Meg and The Peak. Although core earnings continued to see a healthy turnaround, we lower our TP in view of near-term market risk post the 15th General Election.

• 2QFY23 results. The sequential growth in earnings was mainly driven by higher sales and billings from The Meg, land sale at Seri Tanjung Pinang 2A (STP2A), as well as improved performance for the hospitality division, which contributed 24% to 1HFY23 total revenue. The average room rate for Eastern & Oriental Hotel in Penang has increased to MYR663 (vs MYR646 in 1QFY23 and MYR575 last year), while the hotel’s average occupancy rate has improved further to 82.7% in 1HFY23 vs 11.2% in 1HFY22 due to lockdown during the pandemic period. However, headline net profit during the quarter was skewed by a MYR19.9m unrealised FX loss (MYR22.8m in 1QFY23). Excluding the item, core net profit would have been around MYR20m. Net gearing still stayed at about 0.60x.

• Sales momentum on the level. E&O’s new sales achieved MYR182.8m vs MYR207.1m in 1QFY23, bringing 1H sales to MYR389.9m. The Meg is the largest contributor, with MYR306.3m sales recorded during the period, followed by The Peak (MYR74.5m), The Conlay (MYR5.4m) and Avira Phase C (c.MYR3.7m). Take-up rate for The Meg has reached 82% as at Sep 2022, while The Peak, which was officially launched in Jul 2022, is now 23% sold. Sales for The Conlay remained unchanged at c.32%.

• Pipeline launches next year. Management plans to roll out more projects in STP2A as sales for The Meg have reached a decent level. In the pipeline, E&O plans to preview its second project in STP2A, Plot 16C (indicative GDV: MYR348m) in early 2023, featuring high-rise executive homes with lower density compared to The Meg. In 2HFY24F, some landed homes comprising 51 units of terraces and 18 units of semi-detached units, with an estimated GDV of MYR240m, will also be launched in STP2A. In Johor, Avira Phase D will be put into the market. This final phase comprises 78 units of landed homes priced at around MYR900,000 each.

• Forecasts. Given the better-than-expected core earnings in 1HFY23, we raise our FY23F earnings by 10%. Unbilled sales continued to increase to MYR696.1m vs MYR597.2m as at 1QFY23.

• Valuation. In view of the unstable political environment which is expected to affect market sentiment, our TP is now lower based on 75% discount to RNAV (from 70%), with a 6% ESG discount inked in given our ESG score of 2.70 for the company based on our in-house rating methodology.

Source: RHB Research - 22 Nov 2022