KEY INVESTMENT HIGHLIGHTS

• 1HFY21 earnings below expectations

• Weak earnings in 1HFY21

• 1HFY21 new sales at RM148m

• Earnings estimates reduced

• Maintain NEUTRAL with an unchanged TP of RM0.37

1HFY21 earnings below expectations. Eastern & Oriental Berhad (E&O) 1HFY21 core net earnings came in below expectations as it recorded core net loss of RM3.8m in 1HFY21. The earnings miss could be attributable to the lower than expected sales and lower revenue recognition from STP2A land in 2QFY21. Note that we have excluded mainly forex gain in our core net income calculations.

Weak earnings in 1HFY21. Sequentially, E&O recorded core net loss of RM4.8m in 2QFY21 against core net profit of RM0.8m in 1QFY21 mainly due to lower contribution from properties division. That brought cumulative core net loss to RM3.8m in 1HFY21. The dismal earnings in 1HFY21 were mainly owing to lower sales of completed properties and lower revenue recognition on reclaimed land in STP2A. Besides, earnings were also dragged by weak performance of hospitality segment which recorded operating loss of RM20.3m in 1HFY21 as the segment was hit by weak hospitality demand.

1HFY21 new sales at RM148m. E&O recorded new property sales of RM59.6m in 2QFY21, lower than new sales of RM88.4m in 1QFY21 as new property sales in 1QFY21 was lifted by sale of Liew Weng Chee land for RM55m. That brought total new sales in 1HFY21 to RM148m. Approximately 65% of total new sales were contributed by project in Klang Valley while Penang and Johor contributed 32% and 3% respectively to new sales. Meanwhile, unbilled sales declined to RM126.1m in 2QFY21 from RM142.9m in 1QFY21, providing earnings visibility of less than one year. Future launches in the pipeline include maiden launch of STP2A (GDV: RM647m) and project at Damansara Heights (GDV: RM348m) which are expected to launch in 2HCY21.

Maintain NEUTRAL with an unchanged TP of RM0.37. We revise our FY21/22F earnings forecasts by -74.8%/-25.8% to factor in the lower than expected earnings recognition from new property sales and land sales. We see unexciting earnings outlook for E&O in the near-term due to low property sales and weak performance of its hospitality segment. Hence, we maintain Neutral on E&O with an unchanged TP of RM0.37, based on 89% discount to RNAV

Source: MIDF Research - 1 Dec 2020