E&O in spotlight on KWAP deal

KUALA LUMPUR (March 31): Eastern & Oriental Bhd (E&O) fell as much as 18 sen or 8% on profit taking after the stock rose ahead of the property developer's announcement on a planned joint venture with Malaysia's Retirement Fund (Inc).

Retirement Fund (Inc) is also known as Kumpulan Wang Persaraan (Diperbadankan) (KWAP).

E&O shares fell to their lowest so far today at RM1.94. At 11:21am, E&O shares cut losses at RM1.96 with some 12 million shares changing hands. E&O was Bursa Malaysia's third-largest decliner.

E&O's share trade resumed today after a suspension yesterday (March 30). Prior to the suspension, the stock rose 16 sen to close at RM2.12 on Wednesday (March 29).

Yesterday, E&O said it was selling 20% of the Seri Tanjung Pinang Phase 2A (STP2A) land within Penang's Tanjong Tokong district to KWAP for RM766.02 million. E&O said the company and KWAP planned to jointly develop the 101-ha (252.81-acre) STP2A tract.

E&O also proposed a restricted issue of 66.1 million new E&O shares to KWAP.

Today, CIMB Investment Bank Bhd said the STP2A land sale was positive for E&O as it crystallised the value of STP2A at a minimum of RM530 per square foot.

"This sets the benchmark for the bigger yet to be reclaimed STP2B and 2C, which have a combined net area that is twice as big as that of STP2A.

"We raise our RNAV by 19% to reflect the RM530 psf land price in our RNAV computation. This raises our (E&O) target price (TP) to RM1.90," CIMB analyst Saw Xiao Jun said. RNAV stands for revised net asset value.

Public Investment Bank Bhd analyst Tan Siang Hing said Public Investment maintains its "neutral" recommendation for E&O shares with an unchanged target price at RM1.80.

"While positive, we believe that the stock has moved well ahead of our fair value and hence still maintain our Neutral recommendation and RM1.80 TP (pegged at 50% discount to RNAV). There will be no impact to FY17 earnings, but we understand 10% of the land gain can be recognised once the S&P (sale and purchase agreement) is unconditional. Earnings estimates are kept unchanged for now," Tan said. —

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