E&O registered a 2QFY18 net profit of RM19.7m (+>4x YoY, -7.4% QoQ) which was within our expectations but below consensus. Stripping out one-off items, 1HFY18 net profit of RM36.6m constituted c.50% and 33% of our and consensus full year estimates. As expected, its unbilled sales depleted further from RM739m in 1QFY18 to RM622m currently due to no meaningful new launches. Net gearing remains steady at 0.59x from 0.73x a year ago, and is on track to meet management’s target of 0.5x in the near term. Going forward, we believe catalysts such as further asset disposal or gain from STP2 land injection could re-rate the stock near term. Maintain Outperform with unchanged TP at RM2.00, pegged at 50% discount to RNAV.

• Unbilled sales at RM622m. The Group’s unbilled sales depleted further from RM739m to RM622m sequentially due to the lack of new projects. New sales achieved in 1H2018 are only RM149.7m, with c.62% of the sales from Penang, 23% from the UK and the rest from the Klang Valley and Johor. As reported earlier, we understand that management is looking to unveil projects such as Elmina (Phase 1, RM400m GDV), Jalan Conlay (c.RM900m GDV) and Avira (RM90m GDV) in this financial year. As for overseas projects, we understand that planning permissions for Hammersmith is expected by this year. Going forward, we believe that the focus is still to clear existing inventory, which is valued at c.RM0.5bn at cost, with bulk of the unsold units coming from its high-end condominium, Andaman at STP1.

• STP 2 progress. We understand that the Group is expecting the first batch of STP2 titles to be issued by end-2017 with the remaining titles to be issued in mid-2018. These title issuances are expected to contribute to its earnings in the coming two financial years. Our earnings have not accounted for these as yet. As for progress, Phase 2A works are now 91% completed. The near term objective is to obtain land titles (for profit recognition) and also to prepare for launches for the said land.

Source: PublicInvest Research - 15 Nov 2017