• Upgrade to BUY from Neutral, TP rises to MYR0.55 from MYR0.33, 22% upside. Eastern & Oriental’s 1QFY24 (Mar) results missed expectations, due to slower billings – which were a blip – for its Andaman projects. However, we expect billings to pick up in the coming quarters, backed by its MYR269.2m property sales in 1QFY24. We raise our TP to reflect better market sentiment ahead, given the lifting of the political overhang post state elections.

• 1QFY24 results review. The slower billings from ongoing projects were offset by the higher recognition of sales of land to KWEST (currently 78.7% completed, vs 69.5% in FY23 – reflecting an increase of 9.2%), as well as a better performance YoY from the hospitality segment. While 4QFY23 earnings were skewed by a few exceptional items: i) MYR135.3m property development cost write-down on its UK property assets, which we treat as a core operating item; ii) MYR112.4m FV adjustment of investment properties, ie Straits Quay and St Mary Place; iii) MYR3.2m reversal of loss on right-of-use assets; and iv) MYR7.6m in unrealised FX gains, 1QFY24 saw the recognition of an unrealised FX gain of MYR25.7m. Stripping off the item, core net profit would be MYR11.2m (vs MYR23.7m in 1QFY23). Net gearing inched up slightly to 0.48x from 0.45x in 4QFY23, mainly due to the drawdown for Tanjung Pinang Development infrastructure works.

• Encouraging sales at Andaman Island. 1QFY24 property sales amounted to MYR269.2m, vs MYR121.1m in 4QFY23. Arica, the second serviced apartment project at Andaman Island, was the largest contributor, raking in MYR194.8m in sales in the quarter. The take-up rate for Arica is now >70%, while sales for The Conlay and The Peak were relatively slow.

• Pipeline launches. Management is expecting full-year sales to be around MYR400m (FY23: MYR677m). In 4QFY24, E&O plans to roll out some landed property products and another condominium project at Andaman Island worth a combined GDV of about MYR800m. The company is also looking to kickstart its project in Elmina West (to mitigate single-location risk), and we understand that some earthworks have already commenced. The maiden launch of the landed units is expected to be in FY25 (indicative GDV: MYR500m).

• Forecasts. We pare down FY24-26F earnings by about 15%. Unbilled sales rose to MYR999.3m vs MYR878.9m as at 4QFY24.

• Valuation. Our new TP is based on a 75% discount to RNAV (from 85%), with a 2% ESG discount inked in – given our ESG score of 2.9 for the company.

Source: RHB Securities Research - 24 Aug 2023