CIMB reiterates trading buy call on E&O

CIMB Research reiterated its trading buy recommendation on EASTERN & ORIENTAL BHD [] (E&O) at RM1.35 with an unchanged target price of RM2.25, saying the recent selldown in the company’s shares was not justified as the its fundamentals remain sound.

The research house said E&O’s recent official launch of the second block of St Mary Residences condos in Kuala Lumpur was well-received, adding that some 24% or 70 of the 288 units had been taken up in one weekend, which was in line with expectations as the company’s internal target is 60% take-up within six months of launch.

CIMB Research said E&O’s share price had been under selling pressure recently and fell to an intra-day low of RM1.23 on Monday.

“We suspect the selldown was due to profit-taking on regional property stocks after their share price upswing in recent months; share overhang as some ICULS holders have converted their loan stocks in order to be eligible for the 1-for-2 rights issue; and trimming of positions or exits by investors who do not want to go through the rights issue exercise.

“Given E&O’s high liquidity and beta, the selldown is not a surprise as investors looking to take profit quickly on the property sector would choose E&O for ease of execution. We, however, believe the selldown is overdone, as the group’s fundamentals remain firm,” it said.

Commenting on E&O’s plans, the research house said another project that will be launched soon is the seven blocks of condos at Seri Tanjung Pinang in Penang with a gross development value of RM2 billion.

It said the project sits on 21 acres (8.5ha) of prime land with an unobstructed view of the sea, and that seven to nine acres have been set aside for recreational space including five types of swimming pools as well as a maze park.

“Initial pricing will be at a reasonable discount to the RM800 psf pricing for the last block of marina serviced apartments. However, the discount is expected to be gradually removed when sales pick up pace.

“We believe response to this condo project will be good in view of its attractive features and good location,” it added.

CIMB Research said E&O shares would go ex of the 1-for-2 rights issue on Mon, Oct 19, adding that investors who choose not to go through with the exercise may be selling until Fri, Oct 16.

Those who want to maintain exposure to the company but do not want to pick up the irredeemable convertible secured loan stock (ICSLS) may sell the rights to the ICSLS rights issue from Oct 22 to 30, it said.

Based on the ex-all price of RM1.12, the rights to the ICSLS should have an intrinsic value of at least 47 sen (ex-all price of RM1.12 minus rights price of 65 sen), it noted.

The research house said that the adjustment factor since its last update on E&O has gone back up to 0.83 times due to the recent share price fall.

“We view any weakness in share price as a buying opportunity. Although the target price theoretically should fall in line with the higher adjustment factor, we are keeping our target price unchanged for now as the adjustment factor and cum-target price are moving targets and the adjustment is slight at 2%-3%,” it said.

CIMB Research said E&O remained its top pick in the property sector for its deep value and high beta.

Yesterday, E&O closed at RM1.36, up one sen.