CBRS: E&O - BUY - 15 Aug 2008

CBRS: Eastern & Oriental - IDR related MoU lapses (Company Update)



Price: RM1.06

Target Price: RM3.70

Recommendation: BUY



· Not extending MoU term with Cultural Cluster Sdn Bhd (CCSB) as both Eastern & Oriental (EOB) and CCSB has mutually agreed not to pursue the proposed JV with regards to developments in Nusajaya, since the lapse of the MoU on the 13/8/08. The MoU was signed on the 14/2/08 for a proposed 50:50 JV development of 195ac 99-yr leasehold land (also known as the Heritage District) in Node 1 of Nusajaya, Iskandar Malaysia (previously known as Iskandar Development Region or IDR).

· Reasons for not extending the MoU. According to management, neither party could come to an agreement on plot ratios or valuations. It is possible that the recent change in CCSB's management may have played a role in the fallout of the MoU. Recall that CCSB is a 60% subsidiary of Al Nibras 2 Ltd (private fund company managed by Kuwait Finance House) with South Johor Investment Corp Bhd and Jumeirah Capital via Alpha (Four) Ltd owning the remaining 30% and 10%, respectively.

· EOB is still interested in doing property development in Iskandar Malaysia (IM) as it is a good means of geographically diversifying future income. However, we do not expect any concrete plans to materialize within the next 6 to 9 months, given the current lacklustre interest in IM due to global economic and local political uncertainties.

· No impact on earnings as we have not factored in any earnings from this proposed project. Therefore, we are maintaining our FY09E and FY10E net profit of RM71m and RM77m, respectively. FY09E GDPS is fairly attractive at 5.0sen or a yield of 4.7%.

· Maintain BUY with target price of RM3.70, based on conservative sum of parts RNAV on a fully diluted basis. FY09E and FY10E PERs are very compelling at 8.9x and 8.1x.