September 4, 2009

E&O jumps to 12-month high

KUALA LUMPUR: EASTERN & ORIENTAL BHD [] (E&O) rose as much as 17% to a new 12-month high of RM1.52 on Sept 3 after CIMB Research called it the property sector’s top pick as it is well positioned to ride the next upturn, while the strong response to recent launches attests to the group’s marketing prowess.

Initiating coverage on the stock with a trading buy, the research house said it was not only a highly liquid deep-value stock but was also one of the highest-beta property stocks.

E&O, which owns a 124-year-old hotel in Penang, eased at the close but was still up 13.1% or 17 sen at RM1.47 with 23.56 million shares done, on CIMB Research’s report that tags the stock with a target price of RM2.18.

The stock earlier rose as much as 22 sen to the intra-day high of RM1.52.

CIMB Research said E&O had fallen off investors’ buy list over the past few years and at its worst, the share price was down nearly 90% as losses in FY3/09 derailed the share price.

“While we concede that E&O’s execution track record leaves much to be desired, the share price has overreacted to the bad news and ignored the company’s pluses, that is, its strong brand name recognition and excellent landbank in Kuala Lumpur and Penang,” said CIMB Research.

It said E&O’s St Mary Residences’ take-up rate since the soft launch in June now exceeded 80%. St Mary Residences is located in KL’s golden triangle district.

“Likewise, the 2½-storey links in Penang priced from RM1.1 million onwards were snapped up within hours of launch. E&O has aggressively lined up over RM4 billion worth of PROPERTIES [] for launch over the next two to four years,” it said.

CIMB Research said E&O’s prospects were promising, as evidenced by the strong take-up for its recent launches in Kuala Lumpur and Penang.

“We believe prospects for residential properties in the Klang Valley remain healthy in view of the area’s strong purchasing power and relatively high population growth.

“Also, residential overhang, the number of unsold properties (completed and under CONSTRUCTION []) in the Klang Valley, has been gradually declining,” it said.

It said for Penang, the overhang was even less of a concern, having almost halved since 2004.

As a proportion of annual demand, the unsold stock in the Klang Valley and Penang was also below the national average, it said.

CIMB Research said E&O’s strong branding and marketing, particularly for higher-end residential properties, gave it an edge over other developers in the same space.

The group has been involved in high-rise and landed residential properties for many years now and has a good following among purchasers, it said.

“Throw in its ability to acquire or go into joint ventures involving prime landbank at reasonable prices and E&O has a very appealing proposition for buyers.

“The launch of St Mary Residences at a time when most developers are sitting on the sidelines waiting for greater clarity attests to the group’s willingness to take calculated risks and its ability to take advantage of improving conditions,” it said.

CIMB Research said besides residential properties, E&O also had exposure to commercial properties and was planning an office building next to St Mary Residences.

Prospects for office buildings in Kuala Lumpur are trickier than for residential as there are some stalled projects and demand for rental space has been affected by the economic downturn, it said.

“But at the same time, there is still an appetite for en bloc transactions, going by Mah Sing’s recent deal.

“The commercial component of E&O’s Seri Tanjung Pinang should enjoy stronger interest as much of it could cater to the increasing population and popularity of the area. E&O plans to lease out a commercial building to Tesco in a transaction that values the land at RM220 psf,” it said.

CIMB Research said the potential re-rating catalysts for E&O include the unlocking of the hidden value of its assets through its ambitious launch schedule; strong earnings momentum, going by its recent brisk sales; and a return of investor interest in bombed-out liquid developers.

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Ibrahim bin Ramli@Nuang started his career with CIMB Wealth Advisors Berhad as Agency Manager in April, 2008.Previously he was an Internal Auditors and Accounts Executive with Perodua Sales Sdn Bhd since 17 August, 1994. His background:- 1.Certified of Achievement for Master Sales Leadership from Dr Lawrence Walter Ng of President of The Art Of Learning and International Of Learning Without Learning 2.Certified for eXtra Ordinary Performance of Lawrence Walter Award Certificate for One Million Ringgit Club 2007 3. Certified Life & General insurances 4. Conferred with Diploma in Business Studiess & Bachelor of Business Admin(Hons)Finance from UiTM, Terengganu Branch & Shah Alam respectively;

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