Better 2HFY20 results seen for E&O

TheEdge Thu, Aug 29, 2019 11:06am - 4 years View Original


Eastern & Oriental Bhd
(Aug 28, 77.5 sen)
Maintain buy with a lower target price (TP) of RM1.14:
Eastern & Oriental Bhd’s (E&O) first quarter of financial year 2020 (1QFY20) was below expectations. Core net profit plunged 87% quarter-on-quarter (q-o-q) and 60% year-on-year (y-o-y) to RM9 million for 1QFY20. Unrealised foreign exchange losses of RM7 million pushed net profit to RM2 million (-88% y-o-y) for 1QFY20. We cut our FY20-FY21 core earnings per share (EPS) estimates by 4%-15% to reflect lower joint-venture (JV) earnings from weaker new project contributions assuming slower sales and profit margins due to soft market conditions. We reiterate our “buy” call with a lower TP of RM1.14 based on a 60% discount to the revalued net asset value (RNAV).

E&O’s net profit of RM1.7 million for 1QFY20 comprised only 2% of market consensus and our previous full-year forecasts of RM68.8 million to RM70.8 million. Revenue fell 46% q-o-q and 33% y-o-y to RM135 million due to lower revenue recognition for Seri Tanjung Pinang Phase 2A (STP2A) reclaimed land and STP1 projects, namely Tamarind and Ariza, which were completed in FY19. Hospitality revenue fell 30% q-o-q and 32% y-o-y due to the closure of the E&O Hotel Heritage Wing for refurbishment from March 2019.

E&O remains focused on selling its inventory with a book value of RM712 million while there were no new property project launches in 1QFY20. Its earnings before interest and taxes (Ebit) fell 71% q-o-q and 44% y-o-y to RM31 million mainly due to lower revenue. Its Ebit margin narrowed to 27.1% for 1QFY20, compared with 44.4% for 4QFY19 and 27.4% for 1QFY19. E&O achieved RM79 million in presales for 1QFY20 with Penang properties contributing 94% of total sales. Unbilled sales were RM61 million as at end-1QFY20. Its planned new launches include The Conlay (with a gross development value [GDV] of RM945 million) in August/September 2019 and The Peak (GDV: RM397 million) in March/April 2020. We expect better second half (2H) of FY20 results, driven by the launch of new projects and sale of inventory.

We revise down our RNAV per share to RM2.85 from RM2.96 to reflect the lower valuation for STP2A and Avira, partly offset by lower net debt levels. Based on the same 60% discount to RNAV, we lower our 12-month TP to RM1.14 from RM1.18. A key downside risk would be the share overhang from its planned rights issue.

E&O incurred a net loss of RM1.6 million at the JV level for 1QFY20.

Net gearing had improved to 0.24 times as at end-1QFY20 from a peak of 0.99 times as at end-FY15 following the completion of its private placement of new shares and sale of inventory/land. — Affin Hwang Capital, Aug 28

The content is a snapshot from Publisher. Refer to the original content for accurate info. Contact us for any changes.






Related Stocks

E&O 1.010

Comments

Login to comment.