E&O climbs on takeover news, more M&A ahead?

KUALA LUMPUR: Shares of Eastern & Oriental Bhd (E&O) Bhd climbed to multi-year highs of RM1.68 at the midday break on Monday, Aug 1, as investors picked up the stock on expectations that the company could be a takeover candidate.

At 12.30pm, it was up 12 sen to RM1.68 with 11.11 million shares done while the loan stocks, E&O-LB added 12 sen also to RM1.67 with 229,700 units transacted.

The FBM KLCI rose 8.4 points to 1,557.21. Turnover was 530.66 million shares valued at RM601.29 million. There were 442 gainers, 197 lowers and 265 stocks unchanged.

CIMB Equities Research said recent press reports that SP Setia may have E&O in its sights as an M&A target weree not entirely a surprise as SP Setia is on the lookout for more landbank while E&O has prime landbank in Penang and KL.

“Such an acquisition would be good news as it would seal SP Setia’s dominance in Penang and could stir excitement over the property sector,” it said.

CIMB Research said E&O has many attractions including the rights to reclaim some 760 acres of the most prime landbank on Penang island. But E&O is not alone in being undervalued as there is a long list of Malaysian property companies that are trading at steep discounts even to NTA.

“We remain bullish on the property sector, which could be catalysed by M&A speculation. Mah Sing remains our top pick while SP Setia is a core holding,” it said.

The Edge weekly reported that shareholders with more than 20% equity interest in E&O are willing to cash out at slightly under RM2.50 a share. However, the largest shareholder, E&O managing director Datuk Terry Tham who holds 15.7% is not one of them.

Other major shareholders are Singapore-based GKG Investment Holdings Ltd (11.7%), Tan Sri Wan Azmi Wan Hamzah’s wife Puan Sri Nik Anida Nik Mahshor (11.8%) and ECM Libra (5.4%).

The top four shareholders own a combined 45% of E&O. GKG is willing to cash out at a lower price than what is being sought by Tham.

Nik Anida’s family could also dispose of its stake at about the same price. But holding them back is their long-term relationship with Tham. Besides SP Setia, it is said that other property companies in Penang, such as IJM Land, have expressed interest in E&O.

CIMB Research said M&A activity in the property sector may be picking up pace after the lull since UEM

Land acquired Sunrise at end-2010 and the subsequent MRCB merger with IJM Land unravelled.

“We are not surprised that the M&A theme is resurfacing as property stocks remain cheap and many are trading way below NTA. Also, it is becoming increasingly difficult to acquire decent landbank in the Klang Valley and Penang Island as developers hoard land and are aggressively bidding for strategic parcels.

“For the Klang Valley, the population has grown to nearly seven million and development has spread as far south of Kuala Lumpur as Cyberjaya. Penang island, being an island with a hilly centre and underdeveloped west coast, also limits the availability of land for development,” it said.