Eastern & Oriental Bhd
(July 8, 92 sen)
Maintain buy at 92 sen with target price RM1.40: E&O will be attending our Pulse of Asia conference on July 8. E&O is one of our top buys for the Malaysian property sector.
FY10 sales surged 91% to RM780 million while unbilled sales tripled to RM540 million. And with the completion of its rights issue in November 2009, net gearing improved significantly to 37% from 1QFY09’s 84% with cash reserves at RM560 million. E&O is in a strong position to accelerate launches and seek opportunistic landbank acquisitions.
Take-up rates at on-going launches have reached 65%, that is St Mary (Tower C: 85% @ RM900psf; Tower A: 50% @ RM1,350psf) and Quayside STP condo (ASP: RM685psf). We expect earnings momentum to pick up (three-year CAGR of 53%) with: (i) Scurve recognition of profits as construction progresses; (ii) RM2.5 billion-launch pipeline in Penang and Kuala Lumpur; (iii) Straits Quay retail marina rental from December 2010 onwards (but potential start-up losses); and (iv) completion of Penang hotels expansion.
E&O is trading at a 55% discount to its realised net asset value (RNAV) of RM2.07 against the sector’s 40%. We have yet to factor in the 740-acre STP Phase 2 (yet to be reclaimed) which could add RM1.58 to RNAV. Aside from robust sales, potential catalysts include approval for Kemensah Heights and STP Phase 2, en-bloc sales/international JV partner for its larger projects and prime landbank acquisitions (for example, participation in government land redevelopment as a credible JV partner given E&O’s strong brandname and track record). — Hwang DBS Vickers Research, July 8
This article appeared in The Edge Financial Daily, July 9, 2010.
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