ZJ Research

4QFY13 RESULTS UPDATE

Investment Research for CMDFBursa Research Scheme

3 June 2013 Price : Market Capitalization : Market : Sector : Recommendation : RM2.18 RM2,475.7 mln Main Market Properties Buy

Eastern & Oriental Bhd

Bursa / Bloomberg Code: 3417 / EAST MK Stock is Shariah-compliant.

E&O: 4QFY13 results FYE Mar (RM mln) Turnover Operating profit Finance exp Share of JV profits Pre-tax profit Tax MI Net profit EPS (sen) - basic Op. profit margin Pre-tax margin Net profit margin Net assets/share (RM) 4QFY13 164.8 59.9 (9.0) 8.3 59.3 (18.9) (2.5) 38.0 3.4 36.4% 36.0% 23.1% 1.26 Quarter-on-Quarter 3QFY13 % chg 144.6 13.9% 40.7 47.4% (7.2) 2.4 240.1% 35.6 66.5% (7.8) (1.4) 26.4 43.8% 2.4 43.5% 28.1% 24.6% 18.3% Year-on-Year 4QFY12 % chg 210.6 -21.8% 54.4 10.2% (6.4) 6.6 25.8% 54.6 8.6% (10.4) (2.0) 42.2 -10.0% 3.8 -10.7% 25.8% 25.9% 20.0% Cumulative FY13 FY12 % chg 605.6 492.2 23.0% 184.3 167.1 10.3% (29.9) (30.1) 32.9 34.0 -3.5% 187.3 171.2 9.4% (50.4) (43.4) (7.2) (4.4) 129.7 123.2 5.3% 11.7 11.3 4.0% 30.4% 30.9% 21.4% 34.0% 34.8% 25.0%

4QFY13 Results Review

E&O registered a net profit of RM38.0 mln in 4QFY13, bringing FY13 net profit to RM129.7 mln. The results were within expectations, having reached 103% of our earlier projected earnings. The 23% y-o-y increase in Group turnover was primarily driven by its property development arm which grew 29% y-o-y on higher contributions from its Quayside and Andaman Condominiums in Seri Tanjung Pinang (STP), Penang. Profitability-wise, FY13 operating profit included a disposal gain of RM7.6 mln and an investment property fair value gain of RM9.5 mln, while FY12 operating profit had a fair value gain of RM64.5 mln. After adjusted for these one-off items, FY13 operating profit was up by more than 40% y-o-y in line with the increase in turnover, as well as reflecting higher profit margins of its current projects. Meanwhile, share of profits of jointly-held entities was down 4% y-o-y following the completion of its St Mary Residences and STP Seafront Villas projects. On the Hospitality business, E&O registered an operating loss of RM4.1 mln in FY13 vs. breakeven level in the preceding year after incurring pre-opening expenses of its new Delicious outlet and the E&O Residences which opened in December 2012. The Board has recommended a first and final dividend of 4.5 sen less 25% tax for FY13, subject to shareholders approval at the forthcoming AGM. Going forward, we remain positive on E&O and believe prospects for the Group have gotten better following the conclusion of the recent General Election (GE). With the uncertainties surrounding GE now cleared, we opine both property and stock investors are back in the market after having waited at the sideline for many months, and the demand would certainly bode well for E&O. Based on the expected new launches in the pipeline, we project E&O to record a turnover and net profit of RM674.3 mln (+11.4% y-o-y) and RM146.1 mln (+12.6% y-o-y) respectively. 1 of 3

Eastern & Oriental Berhad

ZJ Research

The Group certainly has a busy year ahead with new planned launches amounting up to RM2.2 bln in the pipeline for the next 12 months. These include the last block of the Andaman Condominium at STP (GDV: RM550 mln), The Mews Condominium at Jalan Yap Kwan Seng (GDV: RM400 mln; target launch: 1H2013), Medini Integrated Wellness Capital in Iskandar Malaysia (GDV: RM1 bln, target launch: 1H2013) and Princes House in London (GDV: RM250 mln). According to management, it has held some previews of The Mews Condominium in overseas and the response has been encouraging so far despite the hefty indicative price tag of RM1,700 psf. We also expect response for the upcoming Medini Wellness Centre to be good given the E&O brand name, the backing of Temasek Holdings Pte Ltd as well as the strategic location of Iskandar Malaysia. Meanwhile, in the longer term, the STP Phase 2 project which involves the reclamation of 740 acres of land in Penang is still intact and the Group expects to make an announcement soon on the timeline. Management also recently unveiled E&Os business plan for the next three years that included a target cumulative net profit of RM450mln-RM500 mln on the back of RM1.5bln-RM2 bln new property launches per year between FY14-FY16. The 4 major focus markets would be Penang, Iskandar Malaysia, Klang Valley and overseas.

Recommendation
We maintain our Buy recommendation with a higher fair value of RM RM2.56 (from RM1.92), after applying a smaller discount of 20% (vs. 40%) to our RNAV valuation of RM3.20. With GE issue now behind us, the Group is going full force with its property development projects and we expect to see a hive of activities and new launches to come on-stream over the next 3 years with the Group monetizing its landbank as well as acquiring new parcels of land. We continue to like EOB for its i) prospective long term earnings growths and sustainability; ii) clear growth strategy; and iii) experienced management team.
Per Share Data FYE Mar Book Value (RM) Cash Flow (sen) Earnings (sen) Net Dividend (sen) Payout Ratio (%) PER (x) P/Cash Flow (x) P/Book Value (x) Net Dividend Yield (%) ROE (%) Net gearing (x) FY12 1.17 12.0 11.3 3.2 29.3% 19.3 18.1 1.9 1.5% 9.6% 0.3 FY13 1.26 12.7 11.7 3.4 29.6% 18.6 17.1 1.7 1.5% 9.3% 0.4 FY14f 1.35 14.5 12.9 3.6 27.7% 16.9 15.0 1.6 1.6% 9.5% 0.4
P&L Sum m ary FYE Mar (RM m ln) Revenue Operating profit Net Int Exp Share of JV profit Pre-tax Profit Eff. Tax Rate Net Profit Op. Profit Margin (%) Pre-tax Margin (%) Net Margin (%) FY11 271.3 61.7 (28.1) 15.3 48.2 26.2% 32.2 22.8% 17.8% 11.9% FY12 492.2 167.1 (30.1) 34.0 171.2 25.3% 123.5 34.0% 34.8% 25.1% FY13 605.6 184.3 (29.9) 32.9 187.3 26.9% 129.7 30.4% 30.9% 21.4% FY14f 674.3 208.2 (30.6) 28.6 206.3 26.0% 146.1 30.9% 30.6% 21.7%

Note: FY11, FY12 & FY13 net profits include one-off items.

E&Os last 12-month share price chart

Source: Bloomberg Analyst: Nicole Tan Yoke Ping (nicole@zj.com.my)

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Eastern & Oriental Berhad

ZJ Research

RATING GUIDE
BUY SELL HOLD Price appreciation expected to exceed 10% within the next 12 months Price depreciation expected to exceed 10% within the next 12 months Price movement expected to be between -10% and +10% over the next 12 months from current level

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