Contribution from STP2A land sale lifts E&O’s earnings

  • Business
  • Wednesday, 14 Feb 2018

Higher maiden contribution from sale of 20% of the land in Seri Tanjung Pinang 2A (STP2A) boosted Eastern & Oriental

KUALA LUMPUR: Eastern & Oriental’s (E&O) 9MFY3/18 core net profit (excluding revaluation gains and forex losses) came in above expectations at 112% of CIMB Equities Research and 85% of Bloomberg consensus full-year estimates. 

It said on Wednesday the stronger-than-expected core net profit was mainly attributed to the higher maiden contribution from sale of 20% of the land in Seri Tanjung Pinang 2A (STP2A) to Kumpulan Wang Persaraan (Diperbadankan) (KWAP) or the Retirement Fund (Incorporated).

E&O’s 9MFY18 core net profit more than doubled from RM42m to RM93m on-year, underpinned by 44% on-year revenue growth which was largely from the land sale.  

Its 9MFY18 revenue rose 44% on-year, largely driven by maiden revenue of RM188.4m recognised from the sale.

PBT increased at a faster pace of 102% on-year, lifted by operating profit of RM80.3m from STP2A.

CIMB Research said in addition, encouraging sales of inventories and steady progress on projects, namely The Tamarind and Ariza Seafront Terraces Phase 2, also supported the higher PBT. 

“As at 9MFY18, E&O recorded new property sales of RM235.7m and unbilled sales of RM499.3m, which were lower vs. 9MFY17 new property sales of RM256m and unbilled sales of RM856m. 

“For FY18F, E&O targets flattish property sales of RM350m-RM380m, which is similar to the FY17 level of RM381m,” it said.  

Commenting on STP2A, it was about 91% completed as at October 2017. 

E&O targets to complete the land reclamation works by mid-2018F. 

“Hence, we expect profit from the land sale to KWAP to be recognised progressively in FY18-19F. 

“We increase our FY18F EPS by 28% but reduce our FY19-20F EPS by 1-6% to reflect the change in the development timeline and faster-than-expected contribution from the STP2A land sale. 

“As at 9MFY18, unbilled sales of land to KWAP were RM689.4m,” it said.  

CIMB Research maintained its Hold recommendation with an unchanged target price of RM1.59, based on a 75% discount to RNAV. 

“The steep discount to RNAV is justified by the continued challenging domestic property market conditions, while we believe it could take a long time to unlock the value of STP2. 

“E&O said that the development period for STP2A is expected to be 15 years. The entire STP2 could potentially take 30-45 years to complete as STP2B and STP2C are nearly twice as large as STP2A,” it said.

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