Kenanga upbeat on E&O projects

PETALING JAYA: A property downcycle in terms of slower take-up rates may affect the outlook for Eastern & Oriental Bhd (E&O).

In a research report, Kenanga Investment Bank said the regional property scene had “cooled slightly” due to local political uncertainties and the grim outlook for global economies.

“Nevertheless, we remain upbeat on E&O’s projects as they are in prime areas and can leverage on their strong branding. Additionally, the group has achieved high take-up rates for its ongoing projects, which mean earnings are secured for at least two more years,” the Kenanga report said.

The research house added that brand power was the driver of E&O’s corporate goals to create strong sustainable income in the long term.

“E&O believes that branding is critical for strong sustainable growth, especially when targeting discerning high-end home buyers,'' it said.

“The group has identified niche markets and produced high-quality innovative products at the same time to achieve high take-up rate before completions,” it added.

E&O has aggressively marketed its properties overseas and has taken advantage of “Malaysia, My Second Home” as well as other property incentives to attract foreign buyers.

The company, which is on a continual lookout for prime land in the Klang Valley, Penang and Johor, would be more cautious in acquiring land due to the soaring prices for such land.

Kenanga said the company's margins should be able to buffer it against rising material costs. It added that E&O was making a “fat enough a margin” for its property projects.

Kenanga initiated a “buy” call on E&O with a target price of RM3.54.

Standard & Poor's Equity Research (S&P) said E&O's earnings for the financial year ending March 31, 2009 would be driven by its property development arm while its hospitality and lifestyle division would provide income flow in addition to strengthening the E&O brand.

S&P said in a research report that in the longer term, E&O aspired to enjoy higher recurring income from its property investment division, which had targeted a portfolio of RM1bil worth of properties over the next five years.

By The Star (by Leong Hung Yee)