• Maintain BUY and MYR0.88 TP, 44% upside with c.3% FY25F (Mar)yield. Eastern & Oriental’s (E&O) 2QFY24 results beat expectations, mainlydue to property sales chalked from the Arica project as well as higherincome from the hospitality segment. We raise our FY24-26 earningsforecasts, as we expect earnings in 2H23 to remain resilient – given itssmoother construction progress and successful project launches earlier. Itshospitality segment should book much stronger income during the year-endfestive season.

• 2QFY24 results review. The stronger QoQ revenue and core earningswere mainly due to encouraging sales and billings from Arica – which is thesecond serviced apartment project at Andaman Island – as well as anincrease in its average room rate and occupancy rate from the hospitalitydivision. The unrealised FX gain during the quarter was negligiblecompared with MYR25.7m in 1QFY24. Its share capital rose to MYR1.61bnfrom MYR1.54bn last year, as a result of irredeemable convertibleunsecured loan stock or ICULS conversion during the quarter. Net gearingremained relatively steady, at 0.48x.

• Sales at Andaman remained strong. Property sales reached MYR182.3mvs MYR269.2m in 1QFY24. Of the total sales of MYR451.5m in 1HFY24,Arica was the largest contributor, bringing in MYR305.4m in sales duringthe period. The project is now >80% sold. Meanwhile, The Peak and Aviracontributed MYR47.2m and MYR65.7m in sales. The Peak is now 65-70%sold, and the take-up rate for The Conlay has improved slightly to about40%. The Conlay is slated for completion in Nov 2024.

• Another launch in 1QCY24. In the pipeline, E&O is looking to launch somelanded products comprising semi-detached and terraced units at AndamanIsland worth a total GDV of MYR280m. This will be launched in twotranches, with the first one likely done just before the Lunar New Year inFeb 2024. We expect the landed products to be well taken-up upon thelaunches, and sales will likely flow to 1QFY25, given the time to convert intocontractual sales. We therefore expect E&O to book c.MYR500m inproperty sales for FY24, as it is only selling the remaining unsold units inthe existing projects these few months. At yesterday’s analyst briefing,management indicated that it is on track to complete reclamation works forSeri Tanjung Pinang 2B and 2C by 2025, before the deadline in 2028.

• Forecasts. In view of the stronger-than-expected 1H results, we raise ourFY24-26F earnings by about 14-15% to reflect the smoother constructionprogress and stronger property sales in Penang going forward. Unbilledsales increased to MYR1.13bn vs MYR999.3m as at 1QFY24.

• Valuation. Our TP is based on a 60% discount to RNAV, with a 2% ESGdiscount inked in – given our ESG score of 2.9 for the company.

Source: RHB Securities Research - 23 Nov 2023