Last Friday, E&O signed a share sale agreement with Langkawi Saga Shopping Centre Sdn Bhd and Lubritrade Trading Pte Ltd to dispose of the Lone Pine Hotel.
KUALA LUMPUR: PublicInvest Research is positive on Eastern & Oriental Bhd
’s (E&O) proposed sale of its subsidiary, E&O Express Sdn Bhd which owns and operates the Lone Pine Hotel in Batu Feringghi, Penang, for RM85mil.
It said on Monday this is consistent with plans to dispose non-core assets to lighten its debt.
“We understand that the bulk of the proceeds will be used for working capital and repayment of bank borrowings (totaling RM83.9mil net of sale expenses). E&O expects to realise an estimated gain on disposal after taxation of RM23.3mil upon the completion of the deal,” it said.
PIVB Research said E&O’s net gearing is expected to improve from 0.75 times to 0.71 times after the completion of the disposal.
The company has plans to lower its net gearing to 0.5 times in the near term. The research house maintained its Neutral outlook on E&O and RM2 target price, pegged at 50% discount to realised net asset value.
Last Friday, E&O signed a share sale agreement with Langkawi Saga Shopping Centre Sdn Bhd and Lubritrade Trading Pte Ltd to dispose of the Lone Pine Hotel.
PIVB Research said it was positive on the asset sale as this will strengthen the group’s balance sheet via realising cash resources which can then be deployed into identified projects and investments to maximise returns.
“We understand that annual interest savings (assuming all net proceeds are used to pare down debt) is estimated to be RM4.6mil. We keep our earnings estimates unchanged for now pending completion of the deal,” it said.
The research house also believed that E&O has certain other non-core assets that could be disposed such as Straits Quay Retail (270,000 net lettable area, RM233mil book value), and non-strategic landbank such as its 0.9-acre land at Jalan Liew Weng Chee (off Jalan Yap Kwan Seng) that has market value of RM55mil.
“If the price is right, we believe that it will also offload its overseas undeveloped landbank,” it said.
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