Eastern & Oriental Bhd
(Nov 29, 56 sen)
Maintain buy with a lower target price of 86 sen: Eastern & Oriental Bhd’s (E&O) net loss of RM10.7 million for the six months of financial year 2020 (6MFY20) was a surprise compared to the full-year consensus and our previous net profit forecasts of RM55.6 million to RM57.2 million. Its revenue fell 29% year-on-year (y-o-y) to RM271.4 million due to a lower revenue recognition for the Seri Tanjung Pinang Phase 2A (STP2A) reclaimed land sold to Kumpulan Wang Persaraan (Diperbadankan) and STP1 projects.

Its Tamarind and Ariza projects in STP1 were completed in FY19. Its hospitality revenue fell 32% y-o-y to 28.9 million due to E&O Hotel’s heritage wing closure for refurbishment since March 2019, before reopening in December 2020. E&O remained focused on selling its completed and unsold units worth RM136 million — and with a market value of RM249 million — as at end-second quarter of financial year 2020 (2QFY20), down from a high of RM455 million for FY17. There were no new property project launches for 1QFY20.

Its earnings before interest and tax (Ebit) fell 44% y-o-y to RM48.4 million for 6MFY20, mainly due to lower revenue and Ebit margin. Its Ebit margin narrowed to 17.8% for 6MFY20, compared with 22.8% for 6MFY19 as E&O reduced prices of its unsold units to clear inventories. E&O achieved sales of RM182 million for 6MFY20 with Penang properties contributing 86% of total sales. Unbilled sales were at RM51 million at end-2QFY20.

E&O launched The Conlay luxury condominium project with a gross development value (GDV) of RM968 million in the fourth quarter of 2019 and plans to launch The Peak, with a GDV of RM350 million, in early 2020. We expect better results for the second half of FY20 (2HFY20), driven by the launch of new projects and further sales of inventories especially for its Andaman 1G project in STP1.

Its net gearing increased to 0.35 times at end-2QFY20, from 0.24 times at end-1QFY20, with the payment to complete the STP2A reclamation. E&O is close to refinancing its bank loans for the STP2A project to reduce interest rates and finance its plan to reclaim 100 acres (40.47ha) of a total 507 acres in STP2B and STP2C going forward.

It is positive to note the Penang state government had granted an extension of time for E&O to complete the reclamation of STP2B and STP2C to 2028, from 2022 previously. — Affin Hwang Capital, Nov 29