Eastern & Oriental - BUY - 28 Aug 2008

Eastern & Oriental - 1Q09 results meet house estimates (Results Note)



Price: RM1.00

Target Price: RM3.54

Recommendation: BUY



· 1Q09 net profit of RM11m came within our expectations but fell short of street's forecast. Eastern & Oriental's (EOB) 1Q08 net profit accounted for 23% and 17% of our and consensus' FY09E net profit forecast of RM47m and RM66m, respectively. The company's results were mainly buoyed by its Seri Tanjung Pinang P1 (STP1) project.

· YoY, 1Q09 net profit fell 29%. Dua Residency, Idamansara and Seventy Damansara were completed in the last two financial years. Hence, 1Q09 registered lower billings from the Klang Valley projects given their high take-up rates of 93% to 100%. Additionally, EOB's hospitality and investment holdings divisions incurred operating losses of RM3m in 1Q09 which exacerbated the decline in earnings.

· QoQ, 1Q09 pretax profit rose 10% on the back of higher billings from richer margin STP1 products; semi-detached homes (Acacia), bungalows (Villas by the Sea) and service apartments (Suites at Waterside). Lower 4Q08 pretax profit was burdened by heavier initial construction works which were not billable to house buyers for the above-mentioned projects. Given a slower start in terms of billing in 2H08, FY09 revenue is expected to be buoyed by STP1 projects.

· Up-coming launches. This Friday, EOB will be launching another 24 units of "Suites at Waterside" with price tags ranging from RM0.7m to RM1.6m each or RM673psf - RM704psf. Initially, EOB intended to keep these units as investment properties. However, EOB decided to release them for sale given the keen demand. This project will also set a pricing platform for its STP1 Seaside Condominium project, which is targeted for launch by end CY08.

· We are maintaining our FY09E net profit forecast of RM71m (post-merger forecast) given the c.RM18m gain on disposal of the Yap Kwan Seng land and strong unbilled sales of RM181m as at 31/8/08. FY09E and FY10E PER are trading at fair 8.4x and 7.6x, respectively. Reiterating BUY call with unchanged target price of RM3.54.