Eastern n Oriental - BUY - 29 May 2008

Eastern & Oriental - FY08 results largely in-line (Results Note)



Price: RM1.58

Target Price: RM3.54

Recommendation: BUY



· FYMarch08 results largely in line with our estimates. Eastern & Oriental (EOB) net profit of RM129m accounted for 97% of our forecast but was 15% below consensus estimates of RM151m. Is 63% owned E&O Property Development (ENOP), recorded higher profit margins of 30% (FY07: 26%) from high margin properties in the Klang Valley (Dua Residency and Idamansara).

· 36% YoY growth in FY08 recurring net profit (RNP*) of RM35m. The Hospitality segment registered a 57% YoY growth in revenue, while its operating margins rose 2% from FY07's 0.3%. The combination of the high margins properties in Klang Valley and Penang products contributed to the higher RNP* despite property development revenue falling by 5% YoY to RM466m. In addition FY08 was also burdened by heavier initial construction works which were not billable to house buyers for new launches at Seri Tanjung Pinang Phase 1 (STP1) in 2H08 resulting in lower progress billing recorded in FY08. (RNP* = RNP less Putrajaya Perdana Bhd (PPB) earnings).

· 4Q08 PBT of RM14m rose 75% QoQ, when stripping-out RM99m gains on disposal of PPB from 3Q08's PBT of RM107m, because of more billings from STP1 and 16.5x QoQ increase in other operating income to RM43m due to higher interest income.

· No forecast revision to our FY09E RNP* of RM38m, which is a 9% YoY growth. Driven by unbilled sales of RM193m as at 30/4/08 and impending new launches in 3Q09.

· 1 month trading suspension for ENOP as of today for the purpose of the election period for ENOP minority shareholders for the merger exercise with EOB which will be listed as new EOB shares in early July 2008.

· Unchanged target price of RM3.54. FY09E and FY10E PER are trading at fair 17.6x and 12.7x, respectively. Reiterate BUY recommendation.







KENANGA INVESTMENT BANK BERHAD (15678-H)