Eastern and Oriental Bhd
(Jan 9, RM2.33)
Maintain buy with a target price of RM4.73: We reaffirm our “buy” rating on Eastern and Oriental Bhd (E&O) with an unchanged fair value of RM4.73 per share, based on a 50% discount to our net asset value (NAV) of RM9.47 per share. Our NAV is based on an assumed land value of RM500 per sq ft (psf) for Sri Tanjung Pinang 2 (STP2).

The ex-date for E&O’s one-for-10 bonus issue of up to 114.1 million and one-for-five warrants of up to 228.2 million units is set for Jan 20, 2015 (entitlement date: Jan 22, 2015). The exercise price for the warrants is fixed at RM2.60 per share.

Shareholders entitlement of the bonus issue and free detachable warrants should underpin share price performance.

On a separate note, we understand that the upcoming launch of executive homes called Tamarind, located at Sri Tanjung Pinang 1 had garnered a strong interest of more than 3,000 registrations, mainly from Penang people.

Tamarind sits on seven acres (2.8ha) of land with a gross development value of RM900 million (more than 1,000 units). Unit sizes are between 900 sq ft and 1,300 sq ft. Tamarind is earmarked for launch by the first quarter of calendar year 2015.

We think that the take-up rate for Tamarind should be encouraging due to the affordable prices. The selling price is expected to come below RM1,000 psf or RM1 million per unit given Tamarind’s feature as a mainstream product, unlike E&O’s other niche developments.

Nearby properties at Tanjung Tokong are transacted at just under RM1,000 psf. Ivory Properties’ City Residence is selling between RM900 psf and RM1,000 psf, while units for the Fettes Residences development by IOI Properties Group Bhd are currently transacted between RM850 psf and RM900 psf.

We advise investors to accumulate the stock in view of the current share price weakness.

The key catalyst hinges on E&O’s execution to monetise land value at STP2 to set the benchmark price. This, we opine, will result in a significant renewed buying interest for E&O.

The stock is trading at a deep discount of 76% to its NAV. This is unjustified given the significant accretion to NAV from the reclamation of STP2. — AmResearch Sdn Bhd, Jan 9.

This article first appeared in The Edge Financial Daily, on January 12, 2015.