E&O plunges on trading probe

Eastern & Oriental Bhd, a Malaysian property developer, fell the most in six years after the Securities Commission said it’s investigating a surge in its shares last week when an online newspaper “rumor” that the regulator may order Sime Darby Bhd to make a general offer.

The stock sank as much as 18 per cent in Kuala Lumpur trading to RM1.56, its largest intraday decline since June 6, 2006 and today’s biggest drop in the FTSE Bursa Malaysia Top 100 Index, which gained 0.2 per cent. It pared losses to RM1.60 at 10:41 a.m. local time.

E&O jumped 28 per cent on Aug 10, the most since August 2003, after the Malaysian Insider reported that the commission would U-turn and order Sime Darby to make a general offer after acquiring a 30 per cent stake last year. Last October’s decision that this isn’t required remains unchanged and is subject to a judicial review pending in court, the regulator said in an e- mailed statement the same day.

“The clarification by the Securities Commission should put to rest such speculation for now,” Terence Wong, head of research at Kuala Lumpur-based CIMB Group Holdings Bhd., wrote in a report today. “We were very surprised by the Malaysian Insider report. We expect E&O’s share price to give back most of Friday’s 42 sen gain immediately.”

Palm oil producer Sime Darby agreed to pay RM766 million (US$246 million), or RM2.30 per share, for its E&O stake in August last year to expand its Malaysian real estate business. That was a 59 percent premium to its last closing price at the time and 55 per cent more than E&O’s share price on Aug. 9 before the Insider report. General offers are typically made at the original acquisition price.

Examination Underway

The commission has begun an examination of trading arising from “the rumor,” its statement said.

Investors should wait for E&O’s shares to fall to about RM1.50 before accumulating the stock, said CIMB’s Wong, who kept his trading buy call. This means the stock’s total return is expected to exceed the benchmark FTSE Bursa Malaysia KLCI Index by at least 5 per cent over the next three months.

“Longer-term fundamental prospects of the group remain promising as its Penang properties are selling well and the launch of new projects in Kuala Lumpur and Johor in the fourth quarter of 2012 and first quarter of 2013 should excite the market,” he said.

By Bloomberg