RAISING THE BAR: Image shows Andaman Quayside and two low-rise and Quayside seafront resort condominiums, part of E&O’s developments in Penang. The high-end lifestyle property developer is set to raise the bar with landmark projects to be rolled out this year and a growing portfolio of foreign buyers.
KUCHING: Eastern and Oriental Bhd (E&O), having established itself as a branded high-end lifestyle property developer, is set to raise the bar with landmark property development projects in the pipeline and a growing portfolio of international purchasers.
RHB Research Institute Sdn Bhd (RHB Research), in initiating coverage of the stock, described E&O as ‘having the world as buyers’ as the influx of liquidity was favourable to the developer.
“Having successfully established its track record at Seri Tanjung Pinang 1 (STP1), the company has attained a strong group of both local and foreign followers. Currently, over 30 per cent of its buyers are foreigners.
“Knowing the importance of foreign purchasers to drive its luxury products, E&O further expanded the pool of clientele by collaborating with Mitsui Fudosan to market its products to the high net worth Japanese.
“In addition, the joint venture development with Khazanah and Temasek will not only bring Singaporean buyers to the Medini project but also cross-sell other E&O’s projects in Kuala Lumpur and Penang.
“The reliance on the rather limited group of Malaysian buyers with sufficient purchasing power will, therefore, be gradually reduced.
“The various tightening measures imposed in the regional countries such as China, Hong Kong and Singapore will also compel overseas buyers to look for properties in Malaysia for investment opportunities,” the research house rationalised.
It highlighted the four major catalysts to re-rate the stock with the first being the group having premium projects at three key property hotspots in Malaysia (Penang, Klang Valley and Johor Medini), which enabled it to capture the upscale market segment driven by foreign buyers.
Second, its upcoming STP2 would take off post general election as scarcity of land and rising land values on Penang island, as well as the record pricing at Andaman – Quayside Phase 2 of STP1 would significantly boost the prospect and the upside in gross development value (GDV) for the 760-acre land (to be reclaimed) at STP2.
Third, there would be more solid earnings growth as buyers’ profile shifted. Property development would be the primary driver for profits as various projects worth a total of RM1.3 billion to RM1.5 billion GDV would be launched progressively this year.
Fourth, the potential of a merger and acquisition (M&A) or general offer (GO) by Sime Darby Bhd ‘is always a wild card in future’, the research house said in reference to a ‘long drawn out legal case’ although there was no clear indication of an outcome at this juncture.
“We expect E&O to end the year with a net profit of about RM125 million to RM130 million, in line with management’s guidance of RM250 million to RM300 million combined reported net profit for FY12 (financial year 2012) to FY13 (FY12 reported net profit was RM123.5 million).
“The first half of FY13 net profit has already achieved RM65.2 million. We estimate a decent earnings growth of 11 per cent in FY14 and a stronger 28 per cent in FY15 as earnings from all projects kicking in more substantially.
“In essence, property development will drive operating earnings growth going forward,” RHB Research said while adding that unbilled sales currently stood at about RM960 million.
In conclusion, it valued E&O at RM2.08 per share, based on a conservative 40 per cent discount to RNAV (revised net asset value) that took into account the ‘election risk’.
“The STP2, which makes up RM1.17 or 34 per cent of our RNAV per share estimate, will be a big catalyst once it crystallises. This, we believe, has yet to be reflected in the street’s valuations,” it stated.