E&O expects to begin reclamation works for STP2 by early 2015

Eastern & Oriental Bhd
(April 9, RM2.23)
Maintain outperform with target price of RM2.50: A recent meeting with E&O revealed that the call by the Consumers Association of Penang (CAP) to cancel the proposed Seri Tanjung Pinang Phase II (STP2) land reclamation works in Tanjong Tokong, Penang, will not derail the company’s original plan to obtain the Department of Environment’s approval for the detailed environment impact assessment (DEIA) study by the first half of 2014.

The state government is expected to endorse it by end-2014 while E&O will finalise the master plan and begin  reclamation works by early 2015.

STP2, which covers 760 acres (307.6ha), recently completed the public display of the DEIA study.

To recap, the total estimated gross development value (GDV) is RM25 billion for the development, and the reclamation works will be carried out in two stages. The first stage involves the reclamation of 253 acres over 30 months while the remaining 507 acres will be reclaimed over four years.

The total development period is 20 years. Some 12,000 residential units will be built on 39% of the land while properties will take up 18%. Government reserve will constitute 20% of the land, with the remainder set aside for other purposes.

We understand that the CAP’s resistance to the project should not be a concern as the group is confident that the state government is cognisant of the importance of STP2, as it will put Penang properties on the map as evidenced by the success of STP1 (which consistently set benchmark pricing).

After the successful launch of Princess House in London (GDV: RM250 million, 80% sold), the group is looking to unveil two more projects in the next few months which include Avira at Medini, Johor (GDV: RM750 million) and Andaman Edition 18 East in Penang (GDV: RM600 million).

The initial response has been encouraging with more than 20% bookings made during the marketing roadshows conducted recently. We understand E&O is also pushing existing inventory worth around RM350 million, mostly located in Penang.

Next year, we expect E&O to launch the condominium projects in Medini worth RM500 million to RM600 million, the final block in Andaman (STP1) with GDV of RM750 million to RM800 million and the super-link houses in STP1 (GDV RM150 million to RM200 million).

Maintain “outperform” and target price of RM2.50, pegged at 20% discount to RM3.10 revised net asset value. We still like E&O for its well-located landbank, good management and undemanding valuations. — PublicInvest Research, April 9




This article first appeared in The Edge Financial Daily, on April 10, 2014.