- We reaffirm our BUY rating on Eastern and Oriental Bhd (E&O) with an unchanged fair value of RM4.73/share, based on a 50% discount to our NAV of RM9.47/share. Our NAV is based on an assumed land value of RM500psf for Sri Tanjung Pinang 2 (STP2).

- The ex-date for E&O’s 1-for-10 bonus issue of up to 114.1mil and 1-for-5 warrants of up to 228.2mil is set for Jan 20 (entitlement date: Jan 22). The exercise price for the warrants is fixed at RM2.60/share. Shareholders entitlement of the bonus issue and free detachable warrants should underpin share price performance.

- On a separate note, we understand that the upcoming launch of Executive Homes called Tamarind, located at STP1 had garnered strong interest of more than 3,000 registrations – mainly from Penangites.

- Tamarind sits on seven acres of land with a GDV of RM900mil (>1,000 units). Unit sizes are between 900sf and 1,300sf. Tamarind is earmarked for launch by 1QCY15.

- We think that the take-up rate for Tamarind should be encouraging due to the affordable prices. Selling price is expected to come below RM1,000psf or RM1mil/unit given Tamarind’s feature as a mainstream product, unlike E&O’s other niche developments.

- Nearby properties at Tanjong Tokong are transacting at just under RM1,000psf. Ivory Properties’ City Residence is selling between RM900psf and RM1,000psf, while units for the Fettes Residences development by IOI Properties are currently transacted between RM850psf and RM900psf.

- We advise investors to accumulate the stock in view of the current share price weakness. The key catalyst hinges on E&O’s execution to monetise land value at STP2 to set the benchmark price. This, we opine, will result in a significant renewed buying interest for E&O.

- The stock is trading at a deep discount of 76% to its NAV. This is unjustified given the significant accretion to NAV from the reclamation of STP2.

Source: AmeSecurities