AmWatch - Eastern & Oriental : Elmina West acquired at RM40.78psf BUY, 7 Jul 2014

STOCK FOCUS OF THE DAY

Eastern & Oriental  : Elmina West acquired at RM40.78psf                             BUY

We reaffirm BUY on Eastern and Oriental Bhd (E&O) with a higher fair value of RM4.00/share (vs. RM3.90/share previously), based on a 15% discount to our NAV of RM4.73/share. This is to factor in the new land purchase at Elmina West.

E&O has entered into a sale and purchase agreement with Sime Darby to acquire 135 acres (GDV: RM1.5bil) of freehold land in Elmina West for RM239.8mil. The land deal is expected to be completed by 2QCY19. E&O intends to develop the land into a wellness-themed mixed development. The land acquisition is positive and will be the first township development in Klang Valley for E&O.

E&O’s entry cost of RM40.78 psf (includes conversion premium) comprising land cost (RM32.78 psf) and infrastructure costs (RM8 psf) is attractive. Land prices nearby are transacted above RM100 psf; the nearby Kwasa Land’s reserve price is RM300 psf. Sime Darby will obtain the necessary relevant approvals and develop the major infrastructures. E&O has agreed to share the actual amount of GDV that exceeds the estimated baseline GDV of RM1.5bil, on a 80:20 ratio with Sime Darby.

E&O paid RM24mil (10% of the purchase consideration) as deposit via internal cash. Net gearing remains manageable given the staggered payments for the remaining 90% over five years, assuming 100% debt funding. The next payment will be executed 21 months later (in FY17). We have included these in our earnings forecast.  We believe that demand for this project would be supported by an expanding upgraders’ market. Accessibility is also further enhanced by a new highway (DASH) and MRT.

Separately, E&O is in the midst of unlocking the value of its 1.4 acres of land on Jalan Kia Peng. E&O is mooting for the development of two blocks of serviced apartments (total of 298 units), and a basement floor for retail outlets (GDV: RM820mil).

Others :

Sime Darby : To list auto business?           BUY

Sarawak Cable : To provide better economies of scale    HOLD

Economic Update :  Healthy exports growth of 16.3% YoY in May

QUICK TAKES

Sime Darby : Firms up Elmina land sale to E&O for RM240mil        BUY

Plantation Sector : Newsflow for week 30 June – 4 July NEUTRAL

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