KUCHING: Eastern and Oriental Bhd (E&O) has achieved another key milestone to undertake Sri Tanjung Pinang 2 (STP2) after its subsidiary Tanjung Pinang Development Sdn Bhd (TPD) received notification that its masterplan for STP2 has been endorsed by the Penang State Planning Committee.
According to AmResearch Sdn Bhd (AmResearch), this endorsement validates its longstanding conviction of the deep development potential of STP2.
“E&O will now emerge as the largest land owner of prime seafront land in Penang at Gurney Drive,” the research house observed.
AmResearch noted that the next step will be the calling of tenders, which will be held by the second half of current year 2014 (2HCY14) ahead of the commencement of reclamation works.
“Reclamation works are envisaged to start by the fourth quarter of CY14 (4QCY14),” it added.
The research house had further noted that Datuk Terry Tham’s recent move to increase his stake in E&O from five per centto 15 per centreaffirms the management’s long-term commitment in ensuring the smooth execution of STP2.
“We also view that the endorsement is timely ahead of Temasek’s commitment to invest and develop Penang International Technology Park and Business Process Outsourcing Prime with Penang Development Corporation,” AmResearch highlighted.
On a side note, it pointed out that a total of 891 acres of land will be reclaimed, comprising 131 acres along Gurney Drive and 760 acres at STP2.
Reclamation will be undertaken in two phases with Phase 1 (384 acres) consisting of 131 acres along Gurney Drive and 253 acres at STP2 while Phase 2 will consist of 507 acres at STP2.
The research house noted that the break-even reclamation costs is estimated at RM85 per square foot (psf), after factoring the total 191 acres in STP2 and the area along Jalan Gurney to be given to the state government.
As mentioned in it earlier report, AmResearch believes that E&O may carve out select parcels for commercial developments, which will be sold to reputable global/regional developers once it commences reclamation for STP2.
“This would in turn set a precedent in pricing land values in STP2 and trigger significant net asset value (NAV) upgrades,” it projected.
All said, the research house believes STP2 will do well, underpinned by its strategic location, scarcity of land on Penang island, the firm establishment of STP1 and improved accessibility (via the second Penang bridge and Penang undersea tunnel).
Overall, AmResearch reaffirmed its ‘buy’ rating on E&O with an unchanged fair value of RM3.90 per share – a 15 per cent discount to our NAV of RM4.61 per share, which is based on its conservative assumed land value of RM250 psf for Sri Tanjung Pinang 2 (STP2).
“Our NAV model has yet to capture any development profits from STP2,” it added.