E&O: Hot property in Penang

Eastern & Oriental Bhd (Dec 1, RM1.41) Maintain outperform at RM1.39 with revised target price of RM2 (from RM1.98): Although annualised 1HFY12 core net profit was only 30% of our forecast, it is in line as future quarters should be stronger. We make no change to our target basis of 30% realisable net asset value (RNAV) discount or "outperform" call. But we adjust our target, RNAV and earnings per share for housekeeping and ICSLS conversion. E&O sold RM380 million worth of properties during 1HFY12, 52% more than its RM250 million sales in 1HFY11. Unbilled sales leaped from RM650 million a year ago to RM880 million. The bulk of 1HFY12 sales came from Penang, with the remainder coming from unsold units of St Mary Residences in Kuala Lumpur. As expected, E&O did not propose a 2Q dividend, in line with last year's practice and our expectations. Take-up rates for both the St Mary Residences and Phase 1 of the Penang Quayside condos have reached 80%. Phase 2 of the Penang condos will be launched this month and indications are that demand should be strong. Although minority shareholders may be disappointed that there was no general offer, we view positively the recent emergence of Sime Darby Bhd as a 30% shareholder of E&O. This provides E&O with a strong parent which could come in handy for the upcoming Phase 2 of Seri Tanjung Pinang. Also, we would not discount the possibility of joint ventures between the two companies as Sime Darby has 37,000 acres of undeveloped land with an estimated gross development value of RM100 billion. E&O's expertise in high-end residential projects will provide a good fit with Sime, especially for its landbank in the Klang Valley. — CIMB Research, Dec 1