E&O's flagship project set to take off

by **Cals** Thu 15 Aug 2013, 09:19

E&O's flagship project set to take off
Business & Markets 2013
Written by CIMB Research
Thursday, 15 August 2013 08:47

[b style="line-height: 18px;"]Eastern & Oriental Bhd[/b]
(Aug 14, RM2.18)
Maintain outperform at RM2.08 with a target price of RM2.48: In an advertisement in local dailies on Aug 12, E&O announced that it would hold a public dialogue on Aug 24 for its detailed environmental impact assessment (DEIA) study on Phase 2 of its Seri Tanjung Pinang (STP) project in Penang. This move may not be a surprise but it is, nonetheless, very positive for the group's flagship project.

No change to our earnings per share EPS or target basis of a 20% discount to revised net asset value. E&O remains an "outperform" and our preferred proxy for Penang due to its vast landbank there. Rerating catalysts are expected from final approval for the start of reclamation work on STP Phase 2, which could be forthcoming by end-November.

The Edge Financial Daily reported that E&O is finally making headway with its STP Phase 2 project, after having received approval-in-principle for reclamation work for 760 acres of land in Tanjong Tokong in April last year. Under the DEIA the company is currently conducting, it is required to hold a public forum.

E&O did not provide a timeline on when it expects the entire study to be completed but the Department of Environment's guidelines indicate that a DEIA report review must span 12 weeks. The public dialogue will take place at the Straits Quay Convention Centre on Aug 24.

This development did not come as a surprise as E&O had already indicated during an analysts' briefing in May that it would push for a more concrete timeline to be available to analysts within two to three months. E&O indicated that it would take 60 to 90 days for the DEIA to be wrapped up and it also hoped to conclude the traffic impact assessment (TIA) at the same time.

This means that by end-November, E&O could have all the approvals in place to start reclamation work on STP Phase 2. If so, this would be hugely positive for E&O as we estimate the gross development value of the project at a massive RM25 billion to RM30 billion.

Investors should continue to accumulate E&O as newsflow on STP Phase 2 should pick up in the coming months. — CIMB Research, Aug 13

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This article first appeared in The Edge Financial Daily, on August 15, 2013.