EASTERN AND ORIENTAL BHD
Primary Symbol & Exchange: E+O
3417 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 30/7/2010 RM:1.18
Mkt Cap RM’m : 898.8
Shares (m): 761.7m
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Properties
Fox Capital: Properties
Executive Chairman: Datuk Azizan bin Abdul Rahman
Managing Director: Dato’ Terry Tham Ka Hon
KNOWN MAJOR SHAREHOLDER(S)
Dato’ Terry Tham Ka Hon + 16.55%
G.K. Goh Holdings Ltd 12.75%
+ Direct interest of 7.46% and indirect interest of 9.09% held through Grand Mission International Ltd
Contact Info
Corporate address :Level 3A (Annexe), Menara Milenium, No. 8, Jalan Damanlela, Damansara Heights 50490 Kuala Lumpur, Malaysia
Telephone: +603 2095 6868 Facsimile: +603 2095 9898
Email: corp.comm@easternandoriental.comWebsite: www.easternandoriental.com
BACKGROUND
Eastern and Oriental Berhad (E+O) is a Malaysia-based investment holding Company engaged in the provision of management services to its subsidiaries. The Company has interests in three business activities: hospitality and lifestyle, property development, and property investment. The Company operates in three major business segments: properties, which is engaged in the development and investment in residential and commercial properties; hospitality, which is engaged in the management and operations of hotels and restaurants, and investments and others. The Company's subsidiaries include E+O Property Development Berhad, Dynamic Degree Sdn. Bhd., E+O Developers Sdn. Bhd., E&O Ventures Sdn. Bhd., Eastern + Oriental Hotel Sdn. Bhd. and E+O Leisure Sdn. Bhd. On March 25, 2009, the Company completed the disposal of its entire interest in Puncak Madu Sdn Bhd to Damansara Developments Sdn Bhd, owned through the Company's subsidiaries, Galaxy Prestige Sdn Bhd and Major Liberty Sdn Bhd.
Primary Symbol & Exchange: E+O
3417 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 30/7/2010 RM:1.18
Mkt Cap RM’m : 898.8
Shares (m): 761.7m
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Properties
Fox Capital: Properties
Executive Chairman: Datuk Azizan bin Abdul Rahman
Managing Director: Dato’ Terry Tham Ka Hon
KNOWN MAJOR SHAREHOLDER(S)
Dato’ Terry Tham Ka Hon + 16.55%
G.K. Goh Holdings Ltd 12.75%
+ Direct interest of 7.46% and indirect interest of 9.09% held through Grand Mission International Ltd
Contact Info
Corporate address :Level 3A (Annexe), Menara Milenium, No. 8, Jalan Damanlela, Damansara Heights 50490 Kuala Lumpur, Malaysia
Telephone: +603 2095 6868 Facsimile: +603 2095 9898
Email: corp.comm@easternandoriental.comWebsite: www.easternandoriental.com
BACKGROUND
Eastern and Oriental Berhad (E+O) is a Malaysia-based investment holding Company engaged in the provision of management services to its subsidiaries. The Company has interests in three business activities: hospitality and lifestyle, property development, and property investment. The Company operates in three major business segments: properties, which is engaged in the development and investment in residential and commercial properties; hospitality, which is engaged in the management and operations of hotels and restaurants, and investments and others. The Company's subsidiaries include E+O Property Development Berhad, Dynamic Degree Sdn. Bhd., E+O Developers Sdn. Bhd., E&O Ventures Sdn. Bhd., Eastern + Oriental Hotel Sdn. Bhd. and E+O Leisure Sdn. Bhd. On March 25, 2009, the Company completed the disposal of its entire interest in Puncak Madu Sdn Bhd to Damansara Developments Sdn Bhd, owned through the Company's subsidiaries, Galaxy Prestige Sdn Bhd and Major Liberty Sdn Bhd.
E+O Property Development Berhad (E+OProp) is the property development arm of E+O. Prior to the formation of E+OProp, EOB undertook several prestigious property projects within Kuala Lumpur. Along Jalan Ampang’s Embassy Row, EOB completed residential developments such as Sri Se-Ekar and 202 Desa Cahaya (202 DC), whilst at nearby Kampung Warisan, Malaysia’s celebrated cartoonist Datuk Lat successfully conceptualised a traditional Malay village ambience within the heart of the capital.
Presently, E+OProp focuses on building premium homes within prime locations of Klang Valley and on Penang Island. E+OProp has recently completed the high-end condominium Dua Residency, located within the vicinity of the Kuala Lumpur City Centre (KLCC) as well as Idamansara, located in Kuala Lumpur’s highly prized residential address of Damansara Heights. Seventy Damansara is another one of E&OProp’s signature development with 12 exclusive detached homes within a gated and guarded community. On Penang Island, the masterplan seafront development Seri Tanjung Pinang is situated minutes from Millionaires’ Row of Gurney Drive, underpinning E+OProp’s consistent business strategy of focusing on development in prime areas where demand is prevalent.
RNAV of E+O as estimated by CIMB Research is as follows:-
RNAV
Type………………..…..Location……………………. Size/units……. Price…….. Stake…….. Value (RM m)
Completed buildings
Shops………………… …….Gombak, Selangor……….. 58………………100,000….. 100%..........5.8
Bungalow…………………… Ukay Heights, Ampang, KL 4……………… 2,000,000…100%...........8.0
House + land………………. Damansara Heights, KL…..4………………. 5,000,000... 100%........ 20.0
Desa Cahaya condos……...Ampang, KL……………….. 3………………..800,000… 100%.......... 2.4
Dua Annexe…………. …….Jln Tun Razak, KL………… 29,569 sqft….. 1,000.00……100%....... 29.6
Dua Residence ………….…Jln Tun Razak, KL………… 5……………… 4,050,000 …100% ……20.3
Tesco………………………. Sri Tanjung Pinang ………...252,000 sqft….430.00…….. 100%....... 108.4
E&O Hotel…………………. Penang Island……………… 101………….. 2,000,000….. 100%...... 202.0
Lone Pine Hotel……………Penang Island……………… 50…………….. 600,000 …..100%........ 30.0
Ongoing developments
Seri Tanjung Pinang……...Tanjong Tokong, Pg Ph 1…. 43.0 ac………. .220.00……. 94%......... 387.4
………………………. …….Tanjong Tokong, Pg Ph 2….. 740.0 ac………44.22……… 78%......... 1 ,111.7
Kemensah Heights………. Ulu Klang, Selangor……….. 309.5 ac……….30.00……… 88%......... 355.9
Gertak Sanggul………….. Penang………………………. 365.0 ac……….20.00……… 100%...... 318.0
Jln Teruntung (The Peak). Damansara Heights, KL…….3.8 ac………….750.00…….. 100%...... 125.4
St. Mary's land ……………Jalan Tengah, KL………….. 4.1 ac…………..1,600.00…… 50% ……143.9
Jln Conlay…………………. Kuala Lumpur…………….. .1.4 ac…………. 2,000.00…… 100% …..122.0
Jln Gallagher……………… Bukit Tunku, KL…………… .3.0 ac………….350.00……… 100% …..45.7
Jln Tun Razak…………….. Off Jln Yap Kwan Seng, KL. 0.9 ac………… 1,000.00…… 100% …..39.2
Ukay Heights, Ulu Kelang…Kuala Lumpur……………… 9.4 ac………….50.00………. 100% …..20.5
E&O Hotel land…………… Penang Island……………… 2.0 ac………… 650.00 ……..100% ……56.6
Total value of properties 3 ,152.7
Other investments 4.7
Net current assets less dev. prop. 219.6
Long term borrowings (563.8)
Total RNAV 2 ,813.2
No. of shares (m) 761.7
RNAV per share (RM) 3.69
ICSLS 326.1
8% ICULS 2006/2011 2.5
Warrants @ RM1.00 (m) 37.2
FD RNAV per share (RM) 2.72
Source: CIMB Research, E&O
Other investments 4.7
Net current assets less dev. prop. 219.6
Long term borrowings (563.8)
Total RNAV 2 ,813.2
No. of shares (m) 761.7
RNAV per share (RM) 3.69
ICSLS 326.1
8% ICULS 2006/2011 2.5
Warrants @ RM1.00 (m) 37.2
FD RNAV per share (RM) 2.72
Source: CIMB Research, E&O
WHY WE FEEL E+O IS UNDERVALUED?
(1) “Buy” recommendation by a number of research houses as follows:-
Research house.............. Recommendation.............. Target price...... Basis
Kenanga Research......... Trading Buy.......................RM1.26..............P/B target of 0.6x
S&P.............................. Strong Buy...................... RM1.40..............P/B target of 0.9x
CIMB Research.............. Outperform...................... RM1.63.............. P/B target of 0.6x
(2) E+O has been actively buying back its own shares. Filings with Bursa Malaysia show that E+O bought back around 50 million shares between February and July 2010, representing around 6% of E&O’s issued and paid up capital.
(3) Apart from the share buy-back by E+O, major shareholders such as Singapore based - GK Goh Holdings Ltd have also been accumulating the shares of E+O. In early May 2010, GK Goh has about 11.87% equity interest or 90.43 million shares in E+O. Recent Bursa Malaysia announcements indicate that GK Goh upped its shareholdings in E+O to 94.94 million shares or 12.75% on 19/7/2010.
(4) E+O is trading at a discount if compared to recently listed Penang based property developer, Ivory Properties Group Bhd as follows:-
RNAV.........IPO price.......P/B......................Last trading price.........P/B
RM1.21...... RM1.00.........0.83x...................RM1.37......................1.13x
(5) Some of the positive notes obtained by CIMB Research from their meeting with E+O earlier this year:-
- E+O is still committed to strengthening balance sheet and long-term sustainability. It is focused on garnering high take-ups for its ongoing projects (e.g. St Mary and Quayside Resort) to build strong warchest of cash. Also, the company will sell its KL niche landbanks to focus on developing STP2 if offered price is right.
- Landbank sales could raise another RM344m in the near term, on top of its current cash pile of RM519m at 31/12/09. We think niche land banks on Jln Yap Kwan Seng, Jln Teruntung @ Damansara Heights, Jln Conlay and Jln Gallagher @ Bukit Tunku are most saleable in the short term given scarcity of land in the mentioned prime locations. If so, it potentially lowers current net gearing of 0.50x at 31/12/09 to 0.13x .
- Comforted by quick sales for St Mary Residences and Quayside Resort (Block 1 of Phase 1) It allows E+O to confidently embark on new projects, like reclamation of Phase 2, Seri Tanjung Pinang (STP2) which could add up to 740ac new l and. Recall E+O owns concession to reclaim up to 980ac in Seri Tanjung Pinang, of which 240ac has already been reclaimed and is an on –going development i.e. Seri Tanjung Pinang 1 (STP1). STP1’s final phases include the RM1.8b GDV Quayside Resort (Phase 1 and 2).
- Scarcity of developable land in Penang is a push factor to develop Seri Tanjung Pinang 2 (STP2). We view STP developments as E+O’s crown jewel given prime location while providing the group with long-term sustainable income. Advantages of integrated (e.g. STP) vs niche (e.g. Dua Residence) projects are; 1) flexibility in launching various products to match demand whilst preserving development margins 2) maintain high market visibility 3) maximum value extraction via pricing-up as developers add value whilst population size grows. enjoy premium pricing by leveraging on growing population size and added value
- Masterplan approvals for STP2 to be obtained by end 2010 , according to management. If so, reclamation works can commence as early as 1QCY11.
- Net gearing could be as low at 0.03x in CYE12. CIMB Research’s assumption : 1) RM344m cash is raised from landbank sales 2) St Mary Residence is completed and fully sold 3) Quayside Resort Phase 1 (GDV RM900m) is 80% sold and 80% completed 4) ICSLS/ICULS fully converted . Even so, additional gearing could add RM791m-RM1.1b to cash-pile , assuming E+O’s internal net gearing of 0.60x-0.80x, which comes short of estimated reclamation cost of entire STP2.
(6) The latest possible catalyst as highlighted on The Edge Malaysia publication dated 2/8/2010 under “Are E+O shareholders looking at privatization?” is the possibility of E&O being privatized by its major shareholders.
According to the article, the source says that they are talking to banks to finance the exercise.
It was mentioned in the article that an analyst says it is not surprising that E+O’s shares were heavily traded last week, if these is speculation that E+O may be taken private by its major shareholders. The strength of E+O is its brand name.
(2) E+O has been actively buying back its own shares. Filings with Bursa Malaysia show that E+O bought back around 50 million shares between February and July 2010, representing around 6% of E&O’s issued and paid up capital.
(3) Apart from the share buy-back by E+O, major shareholders such as Singapore based - GK Goh Holdings Ltd have also been accumulating the shares of E+O. In early May 2010, GK Goh has about 11.87% equity interest or 90.43 million shares in E+O. Recent Bursa Malaysia announcements indicate that GK Goh upped its shareholdings in E+O to 94.94 million shares or 12.75% on 19/7/2010.
(4) E+O is trading at a discount if compared to recently listed Penang based property developer, Ivory Properties Group Bhd as follows:-
RNAV.........IPO price.......P/B......................Last trading price.........P/B
RM1.21...... RM1.00.........0.83x...................RM1.37......................1.13x
(5) Some of the positive notes obtained by CIMB Research from their meeting with E+O earlier this year:-
- E+O is still committed to strengthening balance sheet and long-term sustainability. It is focused on garnering high take-ups for its ongoing projects (e.g. St Mary and Quayside Resort) to build strong warchest of cash. Also, the company will sell its KL niche landbanks to focus on developing STP2 if offered price is right.
- Landbank sales could raise another RM344m in the near term, on top of its current cash pile of RM519m at 31/12/09. We think niche land banks on Jln Yap Kwan Seng, Jln Teruntung @ Damansara Heights, Jln Conlay and Jln Gallagher @ Bukit Tunku are most saleable in the short term given scarcity of land in the mentioned prime locations. If so, it potentially lowers current net gearing of 0.50x at 31/12/09 to 0.13x .
- Comforted by quick sales for St Mary Residences and Quayside Resort (Block 1 of Phase 1) It allows E+O to confidently embark on new projects, like reclamation of Phase 2, Seri Tanjung Pinang (STP2) which could add up to 740ac new l and. Recall E+O owns concession to reclaim up to 980ac in Seri Tanjung Pinang, of which 240ac has already been reclaimed and is an on –going development i.e. Seri Tanjung Pinang 1 (STP1). STP1’s final phases include the RM1.8b GDV Quayside Resort (Phase 1 and 2).
- Scarcity of developable land in Penang is a push factor to develop Seri Tanjung Pinang 2 (STP2). We view STP developments as E+O’s crown jewel given prime location while providing the group with long-term sustainable income. Advantages of integrated (e.g. STP) vs niche (e.g. Dua Residence) projects are; 1) flexibility in launching various products to match demand whilst preserving development margins 2) maintain high market visibility 3) maximum value extraction via pricing-up as developers add value whilst population size grows. enjoy premium pricing by leveraging on growing population size and added value
- Masterplan approvals for STP2 to be obtained by end 2010 , according to management. If so, reclamation works can commence as early as 1QCY11.
- Net gearing could be as low at 0.03x in CYE12. CIMB Research’s assumption : 1) RM344m cash is raised from landbank sales 2) St Mary Residence is completed and fully sold 3) Quayside Resort Phase 1 (GDV RM900m) is 80% sold and 80% completed 4) ICSLS/ICULS fully converted . Even so, additional gearing could add RM791m-RM1.1b to cash-pile , assuming E+O’s internal net gearing of 0.60x-0.80x, which comes short of estimated reclamation cost of entire STP2.
(6) The latest possible catalyst as highlighted on The Edge Malaysia publication dated 2/8/2010 under “Are E+O shareholders looking at privatization?” is the possibility of E&O being privatized by its major shareholders.
According to the article, the source says that they are talking to banks to finance the exercise.
It was mentioned in the article that an analyst says it is not surprising that E+O’s shares were heavily traded last week, if these is speculation that E+O may be taken private by its major shareholders. The strength of E+O is its brand name.
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