AmResearch sees catalyst for E&O coming from STP2

by **Cals** Wed 23 Oct 2013, 14:31

Business & Markets 2013

Written by Cynthia Blemin of theedgemalaysia.com

Wednesday, 23 October 2013 12:10

KUALA LUMPUR (Oct 23): AmResearch has maintained its buy call on Eastern & Oriental Bhd (E&O) at RM2.07 with an unchanged fair value of RM3.00 and said the upcoming Seri Tanjung Pinang 2 (STP2) project in Penang is key catalyst for its share price accretion.

The research house, in a note today, said regulatory approval for the commencement of reclamation works at STP2 (760 acres) is the key catalyst for its share price accretion.

E&O’s share price re-rating cycle is still at the early stages, it added.

“We reaffirm our buy recommendation on E&O with an unchanged fair value of RM3.00/share, based on a 35% discount to our NAV of RM4.61/share, including the significant accretion to its asset value from STP2,” it said.

The research house opined that stripping out STP2, its NAV stands at RM1.36/share.

AmResearch said pending regulatory approvals on the commencement of reclamation works (expected to be granted after Chinese New Year), reclamation is envisaged to start in 2HCY14.

The tendering process for reclamation can start immediately once approval is granted, it added. Break-even land cost for STP2 is estimated at RM85psf, it added.

It also pointed out that the approval for the reclamation works at STP2 is not conditional upon the approval of the RM6.3 billion Penang undersea tunnel project – which is critical to alleviate traffic congestion on the island.

It noted that 110 acres will be given to the consortium for the undersea tunnel by the state government as a payment in kind.