Bank expects E&O to return to the black this year

EASTERN & Oriental Bhd (E&O), a high-end property developer, could return to the black in the current financial year and stay profitable for the next three years, CIMB Investment Bank Bhd said in a report yesterday.

For the year to March 31 2009, E&O suffered a net loss of RM37.28 million compared with a net profit of RM128.85 million a year ago.

"The bottom line should return to the black in 2010 and jump 66 per cent in 2011 and 57 per cent in 2012. We believe robust earnings growth is sustainable even until 2013," wrote analyst Terence Wong in the report.

He noted that E&O has the highest upside to its target price if it manages to execute its ambitious launch schedule without too many hiccups.
The research house, which initiated coverage on the company yesterday, describes E&O as its top pick in the property sector with a trading buy target of RM2.18 a share.

This is a steep discount to E&O's revised net asset value of RM3.11 a share, which, according to CIMB's Wong, is the third steepest after UM Land Bhd and Hunza Properties Bhd and more than double the sector average.

Also, E&O has unbilled sales of RM310 million which should reap pre-tax profit margins of 25 per cent and this will be booked over the next two to three years, the CIMB report stated.

The group also has more than RM4 billion worth of properties that are ripe for launch over the next two to four years that should help in its turnaround prospect.

The bulk of the value comes from Seri Tanjung Pinang, a comprehensive mixed development township located 5km northwest of George Town and adjacent to Gurney Drive.

The project also involves reclamation of 397ha of land. So far this year, E&O has launched 33 link houses priced from RM1.1 million upwards, which were snapped up within hours.

Two intermediate units fronting the sea were sold for RM1.6 million, while two corner units, also fronting the sea, were sold for RM2.8 million, a record in Penang.

Its next launch will be the remaining 33 units of marina serviced apartments valued at more than RM30 million, while the biggest launch of the year will be condominiums with RM1.8 billion gross development value (GDV) in total.

Other sizeable launches include the Jalan Conlay condos with a GDV of RM800 million and the commercial building next to St. Mary Residences, situated in the heart of the Golden Triangle, with a GDV of RM500 million.

By Business Times (by Francis Fernandez)