Positive outlook for E&O’s STP2 project in Penang

by **Cals** Fri 07 Feb 2014, 10:33

Business & Markets 2014

Written by AmResearch

Friday, 07 February 2014 10:26

Eastern & Oriental Bhd
(Feb 6, RM1.94)
Maintain buy with unchanged fair value of RM3.00: Following our recent visit to E&O’s successful and established township of Sri Tanjung Pinang (STP1) in Penang, we continue to remain upbeat on its strong branding and growing pipeline of launches (three-year earnings compound annual growth rate of 18%).

Our positive outlook on Phase 2 of STP is maintained given its highly coveted and sizeable landbank (760 acres [307.6ha]) and the scarcity of prime land. E&O is now in the final stages of obtaining approval for STP2’s detailed environmental impact assessment. Approval is expected to be granted in the second quarter.

Notwithstanding this, there are other earnings upsides that are yet to be crystallised from the STP2 development’s profits.

Judging by the take-up rates and reflating prices at STP1 (60% owner-occupiers), we believe that STP2 should do well too. To further underscore this, the last transacted price for its terraced homes (launched in 2005) was about RM2.2 million in the secondary market versus its launch price of about RM600,000. The super terraced units are currently selling at about RM3 million, while the Martinique bungalows are priced at about RM10 million.

The final block of the Andaman series (Andaman Edition 18) should sell well, in our view, underpinned by the maturity of STP1, a seafront view and its fully fitted units. The expected indicative price is RM1,500 psf as the average selling price for Andaman Block 2 was RM1,400 psf.

Developers and real estate players we met in Penang opined that residential property prices in the state are unlikely to weaken and would remain firm beyond this, due to rising construction cost and scarcity of land.

Land value has also surged significantly, particularly within the GeorgeTown enclave, and is hovering between RM680 psf and RM700 psf. The recent transacted price was RM677 psf for a tract of commercial land located adjacent to the Komtar building.

That said, transactions could slow down in the near term mainly due to sentiments caused by the property market cooling measures and the proposed levy by Penang. There is no impact on foreign buying as E&O properties are priced beyond RM1 million.

For STP1, 30% of the buyers were foreigners. The soaring 70% take-up rate at The Mews also underlines the increasing pool of buyers for E&O — 70% of the buyers comprised foreigners. This reflects wider international appeal that will further underpin demand for E&O properties. — AmResearch, Feb 6

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This article first appeared in The Edge Financial Daily, on February 07, 2014.