This article first appeared in The Edge Financial Daily on November 13, 2018
Eastern & Oriental Bhd
(Nov 12, RM1.15)
Downgrade to neutral with a lower target price (TP) of RM1.30: Eastern & Oriental Bhd registered a net profit of RM18.8 million for second quarter of financial year 2019 (2QFY19), primarily driven by foreign exchange gains of RM9 million. Stripping out the gain, the group’s net profit for the quarter came in at a disappointing RM10 million, tracking the weak performance in 1QFY19. For the cumulative first half of FY19 (1HFY19), the group’s net profit of RM32.9 million was below our and consensus estimates at about 31% and 30% of full-year estimates respectively. 2HFY19 could be stronger, however, as we understand only 35% of the Seri Tanjung Pinang Phase 2A (STP2A) reclaimed land has been recognised so far. That said, we believe that new sales for the group will remain challenging and could persist into next year given the increase in real property gains tax and stamp duty announced in Budget 2019. All told, we cut our FY19 to FY21 earnings forecasts by 15%, 47%, and 36% respectively after we adjust our sales and billings assumptions. Most of its planned launches are high-end products especially in the Klang Valley, which we believe could take longer than expected to sell. As such, we downgrade Eastern & Oriental from “outperform” to “neutral” with a reduced TP of RM1.30 from RM2.00 previously, pegged at a higher discount to revised net asset value of about 70%.
The group’s unbilled sales depleted further from RM463 million to RM400 million with new sales mainly from clearing existing stocks.
To recap, the group is targeting to launch several new projects totalling about RM1.5 billion in the next 24 months which, among others, include 503 units of serviced apartments at the intersection of Jalan Conlay and Jalan Kia Peng — Eastern & Oriental’s second joint-venture project with the subsidiary of Japanese conglomerate Mitsui Fudosan — with an estimated gross development value (GDV) of RM900 million, The Peak residential development in Damansara Heights (which has a GDV of RM278 million), and the maiden launch of a condominium project. The initial phase of STP2A is said to have a GDV of about RM380 million comprising 400 units of serviced apartments and 16 to 20 retail lots. — PublicInvest Research, Nov 12