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KUALA LUMPUR: Eastern & Oriental Bhd (E&O), which last Friday received the Department of Environment’s (DOE) nod to proceed with the proposed reclamation works for Phase 2 of its Seri Tanjung Pinang (STP2) development at Tanjung Tokong in Penang, will next seek approval from the Penang state planning committee.
“The most immediate [move] will be to seek the Penang state planning committee’s endorsement for the (STP2) masterplan, and thereafter apply for a commencement of works notice from the committee/Department of Works,” an E&O spokesman told The Edge Financial Daily yesterday.
“Going forward, we will adhere to the subsequent requirements necessary to obtain approval to commence reclamation works.”
Analysts, meanwhile, are expecting E&O to proceed to call for tender proposals for the reclamation works once it receives formal approvals from the Penang government.
In a note to clients yesterday, RHB Research Institute Sdn Bhd senior analyst Loong Kok Wen said she expects the final nod for the proposed reclamation of STP2, which has a gross development value of RM25 billion, to be given in the middle of this year. E&O will then emerge as the largest landowner on Penang island.
In a filing with Bursa Malaysia yesterday, E&O announced that its unit Tanjung Pinang Development Sdn Bhd had last Friday received a conditional approval letter from the DOE for the detailed environment impact assessment (DEIA) study and conceptual masterplan for the proposed reclamation of STP2.
“With the DEIA conditional approval in hand, the board of directors of E&O is of the view that another milestone has been reached for the proposed project,” said the property developer.
The DEIA conditional approval, which is valid for two years, involves the proposed reclamation of 760 acres (307.60ha) of man-made islands and 131 acres of the Gurney Drive foreshore.
AmResearch Sdn Bhd analyst Tan Ee Zhio estimates the break-even reclamation costs to be about RM85 per sq ft, even after factoring in the total 191 acres of STP2 and the area along Jalan Gurney to be given to the Penang government.
He said the land reclamation will be done in two phases, with estimated completion in 6½ years. The maiden property launch at STP2 is likely to happen earliest at end-2016, he said in a note.
Tan believes that financing for reclamation works of STP2 is not an issue given E&O’s strong balance sheet (net gearing stood at 31% as at Dec 31, 2013) and access to strong global partners such as Japan’s Mitsui Fudosan Co Ltd and Singapore’s Temasek Holdings Pte Ltd.
“Based on a very conservative land price of RM250 per sq ft, we expect E&O’s value to more than triple to RM4.61 per share,” said Tan, who maintains a “buy” call on E&O at RM2.25, but raises his fair value from RM3 per share to RM3.90 per share.
Meanwhile, RHB Research’s Loong continues to view E&O as a potential takeover target, considering Sime Darby Bhd’s current 32% stake in the company.
“As Sime Darby was mulling a listing of its property arm earlier, it makes sense for the former to consolidate E&O since Sime Darby currently has no landbank exposure in Penang.
“In addition, E&O has established strong brand equity over the past few years, similar to Sunrise Bhd before the latter was taken over by UEM Sunrise,” she said.
Loong has upgraded E&O to a “buy” from “trading buy” at RM2.25, with a higher RM3.12 fair value from RM2.70, as the commencement of the STP2 project draws closer.
In 1992, E&O was granted the exclusive rights to reclaim and develop land in Tanjong Tokong. To date, E&O has reclaimed land and is continuing to develop Phase 1 of the STP project.
The group had sought the Penang government’s approval to reclaim the balance concession area and in a letter dated April 11, 2011, the Town Planning & Development Department communicated the state’s in-principle approval to the masterplan for the proposed STP2 project.
E&O’s share price closed 21 sen or 9.33% higher at RM2.46 yesterday, giving it a market capitalisation of RM2.79 billion.
This article first appeared in The Edge Financial Daily, on April 15, 2014.
