KUALA LUMPUR (Sept 18): Eastern & Oriental Bhd (E&O) may see an upward re-rating, when the property developer appoints a reclamation contractor for its Seri Tanjung Pinang (STP) phase 2A project in Penang, according to Affin Hwang Investment Bank Bhd.

In a note today, Affin Hwang said E&O was in final negotiations to award the reclamation contract for the 101ha (253 acre) phase 2A.
 
"We reiterate our BUY call on E&O and 12-month RM2.54 target price, based on a 40% discount to RNAV (revised net asset value). We believe that the listing of E&O Plc would be positive for the company and that appointing a reclamation contractor soon, should provide a catalyst for an upward re-rating," Affin Hwang said.

Affin Hwang said its E&O target price was based on an RNAV of RM4.23 a share. At 12:30am, E&O shares settled flat at RM1.61, for a market capitalisation of RM1.98 billion.

Affin Hwang said the delay in concluding the reclamation contract negotiations was due to pricing that was expected to be more attractive, as a result of lower construction and fuel costs.

According to Affin Hwang, E&O is also in final negotiations with banks on project financing.

“Once a reclamation contractor is appointed, E&O would seek a strategic partner for the project that would take up to an effective 27.8% stake in STP Phase 2A. E&O would retain at least a 51% stake, while the Penang state government would hold the remaining 21.2% interest.

“E&O targets to secure a partner within six months, to provide financial support for the project and partially unlock the value of its land reclamation rights,” Affin Hwang said.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)