• Maintain BUY, with new MYR1.38 TP from MYR1.08, 32% upside. We believe Eastern & Oriental is the key Penang property play. Last Friday, the Cabinet approved the Penang light rapid transit (LRT) project. E&O is already seeing a positive spillover as its recently launched projects saw a high take- up rate. Major infrastructure projects on Penang Island should also help lift Seri Tanjung Pinang land prices. Our new TP is based on a 40% discount to RNAV (from 55%). Note, E&O used to trade at par with RNAV during the previous upcycle peak.

• A long-awaited enhancement in connectivity. Since the Sultan Abdul Halim Muadzam Shah bridge (second bridge) completion in 2014, Penang had not seen a major infrastructure project on the island, until now. Segment 1 of the Penang LRT Mutiara Line project, which connects Komtar to Silicon Island, is expected to ease traffic congestion. We believe there will be a positive spillover to properties arising from the LRT project due to the additional transportation mode that should enhance connectivity on the island.

• E&O saw encouraging property sales. Apart from the infrastructure angle, Penang is also benefiting from the US-China trade tensions, as local and regional semiconductor players are taking the opportunity to expand their operations in Penang, which is a reputable E&E hub in the region. We are already seeing the wealth effect in Penang based on the encouraging take up in E&O’s The Meg and Arica projects, which were launched over the last two years. In 1QCY24, the company rolled out its maiden landed properties at Andaman Island. Senna and Ferra, which comprises 69 units of semi- detached homes and terrace homes, are almost 80% sold (only 15 units of terrace houses remain). The average unit pricing of MYR3.8m and MYR5m for terraces and semi-detached units indicates strong buying power from the high-income individuals in Penang.

• Pipeline launches. In June, E&O plans to launch its low-density luxury serviced apartment (GDV: MYR650m), with an indicative ASP of MYR1,100 psf. The built-up area of 1,700-2,700 sqf means that absolute unit price would be around MYR1.8-3m. This is another luxury project after 18 East Andaman, which was completed seven years ago. Given the positive response for the landed homes, we think this luxury apartment project will be similarly well-received.

• LRT project may boost Andaman Island land value. Management is currently exploring JV opportunities to develop the commercial component at Andaman Island. Recall, the JV with Retirement Fund Incorporated or KWAP was transacted at MYR530 psf (additional MYR32 psf for freehold status). We believe subsequent development phases will likely achieve a higher price.

• ESG. Our TP includes a 2% ESG discount based on a 2.9 ESG score.

Source: RHB Research - 1 Apr 2024