E&O extends seven-day rally

KUALA LUMPUR: Property developer Eastern & Oriental Bhd (E&O) continued its run-up for the seventh consecutive trading day on Monday, Aug 2, adding another three sen or 2.54% to RM1.21.

It was the third most actively traded stock with 34 million shares changing hands. It continued to rally on market talk since last week that E&O's major shareholders were considering privatisating the company, a dealer told The Edge Financial Daily on Monday.

According to The Edge weekly in its latest edition, the property company's major shareholders were considering a privatisation plan.

In an announcement after trading hours on Monday, E&O said: "E&O would like to clarify that the company has not received any notice from any of its shareholders pertaining to plans to privatise the company. The company is also not aware of any such plans by any of its shareholders".

E&O's share price has surged about 38% in the last month. Its rally picked up steam from last Wednesday. Inclusive of Monday's three-sen gain, the stock has risen 18 sen, or 17.5% in a span of four trading days.  

However, on a technical basis, the counter was entering overbought territory, said a senior chartist at a Kuala Lumpur-based brokerage "This is the fourth day of a strong rally; it is technically overbought," he said, adding that his measure of RSI (relative strength index) showed that E&O at RM1.25 per share was in the high 80s.

An RSI above 70 indicated an overbought scenario, he said. The RSI is a "momentum oscillator" that measures the velocity and magnitude of directional price movements.

"(Investors) should expect profit taking today or tomorrow," he added. E&O shares hit a high of RM1.29 and a low of RM1.20 on Monday.

E&O managing director Datuk Terry Tham is the largest shareholder in the company with a total stake of 16.55%, according to a July 26 stock exchange filing.

The second-largest shareholder is GKG Investment Holdings Pte Ltd based in Singapore, with a 12.75% stake.

If Tham were to take the company private, it would cost him RM781.15 million, at on Monday's closing price of RM1.21 per share, to acquire the remaining shares in the company that he does not already own.

At the current share price, E&O is trading at a forward price-to-earnings ratio of 16.13 times, based on consensus earnings estimates for financial year ending March 31, 2011 versus the industry peer average of 15.25 times.

The stock is trading at just below its latest net assets per share of RM1.25. As of March 31, 2010, the company was in net debt position of RM272 million, with net gearing ratio at 26%.

According to analysts, E&O has succeeded in establishing itself as an upmarket property developer in Penang and the Klang Valley.

Its completed developments in the Klang Valley include the Dua Residency condominium in Jalan Tun Razak, in close proximity to the Petronas Twin Towers. It is also the developer of the 13-acre (5.26ha) Idamansara semi-detached and detached residential development in Damansara Heights.

In Penang, E&O continues to develop future phases of its high-end Seri Tanjung Pinang seafront project that covers about 980 acres.
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