KUALA LUMPUR: Eastern & Oriental’s (E&O) 1HFY3/19 core earnings (excluding revaluation gains and forex losses) came in within expectations, at 30% of CIMB Equities Research and 29% of Bloomberg consensus full-year estimates.
The research house said on Monday the results were in line as 1H numbers are seasonally weaker.
The 1H19 core net profit rose 10% on-year supported by higher revenue and lower operating costs in the hospitality segment post disposal of E&O Express (which owned the Lone Pine Hotel).
E&O’s 1H19 revenue increased 3% on-year, largely underpinned by the 5.7% revenue growth in property segment due to higher revenue recognition from the sale of 20% of the total reclaimed land in Seri Tanjung Pinang (STP) 2A project to Kumpulan Wang Persaraan (KWAP), and higher sales from the completed properties in STP phase 1, namely the Andaman Condominiums.
This more than offset the 16.6% on-year revenue decline in the hospitality segment due to disposal of E&O Express in October 2017.
“1H19 new property sales came in flattish at RM151m vs. RM150m in 1H18, while unbilled sales were lower at RM399.5m vs. RM622m in 1H18. 59% of its 1H19 new property sales came from projects in Penang, 20% in the Klang Valley, 14% in Johor and 7% in the UK.
“E&O’s unsold inventory declined to RM262m as at end-Sep 2018 vs. RM430m as at end-Sep 2017. E&O does not provide a sales target; we expect FY19F sales to be around FY18’s level (RM387.5m),” it said.
CIMB Research pointed out that STP2A was about 95% completed as of September 2018 and all titles of the STP2A land have been obtained.
E&O targets to complete the land reclamation works by end-2019. E&O is expected to fully complete the sale of the STP2A land by end-2022 and could recognise a net gain of c.RM230mil from the land sale.
“E&O plans to launch Plot 13A of STP2A with a total gross development value (GDV) of RM380m by mid-2019.
“We lower our TP to RM1.20 as we widen our RNAV discount to 80% (from 75%) to factor in the negative impact of some measures in Budget 2019: (i) Real Property Gains Tax (RPGT) rate hike, and (ii) proposed 10% reduction in the prices of new houses.
“Our steep discount to RNAV is justified by the still challenging domestic property market conditions, especially as E&O positions itself as a premium residential developer.
Maintain Hold,” it said.
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