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E&O upgraded to ‘trading buy’ from ‘neutral’
by Cals Wed 16 Apr 2014, 08:59
[size=32]E&O upgraded to ‘trading buy’ from ‘neutral’[/size]
[size=13]Posted on 16 April 2014 - 05:37am
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[size=14]PETALING JAYA: MIDF Research Bhd has upgraded Eastern & Oriental Bhd (E&O) to "trading buy" from "neutral" after the property developer obtained conditional approval from the Department of Environment (DOE) for the proposed reclamation of 760 acres of manmade islands known as Sri Tanjung Pinang (STP2) and 131 acres of the Gurney Drive foreshore.
Analyst Kelly Tan in her research report viewed the procurement of the DOE approval as a big leap in terms of getting the ball rolling on STP2.
"In light of this, we are lowering our discount against revaluated net assets value to 15% (from 30%) resulting in a higher target price (TP) of RM2.67 (previously RM2.20)," she said.
"Although our target price implies a neutral stance, we are making an exception to the rule by calling a trading buy as the stock is likely to rally in the near-term as investors are reminded of the size, attractiveness and long-term earnings sustainability of STP2 amidst the positive news flow," Tan said.
However, as the impact of a more challenging operating environment start to show, Tan expects some consolidation in E&O's share price thereafter.
The approval from the DOE comes three years after E&O received the approval in-principle for the proposed reclamation from the Penang State Government on April 11, 2011.
The procurement of DOE's approval brings E&O a step closer to beginning reclamation works on and the development of STP2.
However, Tan expects the proposed reclamation to possibly only begin early financial year ended 2015 given that a formal endorsement by the Penang State Government has yet to be obtained and the tender process not yet initiated.
She also expects that earnings visibility from STP2 would only emerge in financial year ending 2017 as reclamation works are expected to take two years and the first launch assumed to commence towards the end of the reclamation works, possibly in the second half of FY16.
"Hence, our earnings forecast for the next two financial years remain intact," Tan said.
Nevertheless, Tan expects investor sentiment towards the group to rally ahead of the visibility in earnings as the market is reminded that the potential gross development value (GDV) could be a massive RM25 billion.
"With the development anticipated to span over 20 years, STP2 will provide E&O will a long-term sustainable source of revenue," Tan said.
She said the development itself is unique as it sits atop an island while still boasting excellent connectivity.
Tan said two bridges will be built to link STP2 to Sri Tanjung Pinang 1, and the other to Gurney Drive which is popular with tourists and locals for its famous hawker food.
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[You must be registered and logged in to see this link.]
[size=14]PETALING JAYA: MIDF Research Bhd has upgraded Eastern & Oriental Bhd (E&O) to "trading buy" from "neutral" after the property developer obtained conditional approval from the Department of Environment (DOE) for the proposed reclamation of 760 acres of manmade islands known as Sri Tanjung Pinang (STP2) and 131 acres of the Gurney Drive foreshore.
Analyst Kelly Tan in her research report viewed the procurement of the DOE approval as a big leap in terms of getting the ball rolling on STP2.
"In light of this, we are lowering our discount against revaluated net assets value to 15% (from 30%) resulting in a higher target price (TP) of RM2.67 (previously RM2.20)," she said.
"Although our target price implies a neutral stance, we are making an exception to the rule by calling a trading buy as the stock is likely to rally in the near-term as investors are reminded of the size, attractiveness and long-term earnings sustainability of STP2 amidst the positive news flow," Tan said.
However, as the impact of a more challenging operating environment start to show, Tan expects some consolidation in E&O's share price thereafter.
The approval from the DOE comes three years after E&O received the approval in-principle for the proposed reclamation from the Penang State Government on April 11, 2011.
The procurement of DOE's approval brings E&O a step closer to beginning reclamation works on and the development of STP2.
However, Tan expects the proposed reclamation to possibly only begin early financial year ended 2015 given that a formal endorsement by the Penang State Government has yet to be obtained and the tender process not yet initiated.
She also expects that earnings visibility from STP2 would only emerge in financial year ending 2017 as reclamation works are expected to take two years and the first launch assumed to commence towards the end of the reclamation works, possibly in the second half of FY16.
"Hence, our earnings forecast for the next two financial years remain intact," Tan said.
Nevertheless, Tan expects investor sentiment towards the group to rally ahead of the visibility in earnings as the market is reminded that the potential gross development value (GDV) could be a massive RM25 billion.
"With the development anticipated to span over 20 years, STP2 will provide E&O will a long-term sustainable source of revenue," Tan said.
She said the development itself is unique as it sits atop an island while still boasting excellent connectivity.
Tan said two bridges will be built to link STP2 to Sri Tanjung Pinang 1, and the other to Gurney Drive which is popular with tourists and locals for its famous hawker food.
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Cals- Administrator
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