This article first appeared in The Edge Financial Daily on March 26, 2019 - April 1, 2019

Eastern & Oriental Bhd
(March 25, 90.5 sen)
Maintain neutral with a target price (TP) of RM1: We understand that the net development land for STP2A is 166 acres (67.18ha) of which 73 acres are residential and 93 acres commercial.

The number of residential units approved is 3,264 units while the commercial land has a plot ratio of four times.

We understand that it will unveil the new name for STP2 soon.

To recap, the initial phase of Seri Tanjung Pinang 2A (STP2A) is said to have a gross development vehicle of about RM380 million comprising 400 units of serviced apartments (600-1,200 sq ft) and 16-20 retail lots which are to be launched by 1H2020.

The 760-acre development is exciting and offers the opportunity for the group to strengthen its position further as the premier developer in the country. However, we believe that until it brings in more joint-venture (JV) partners that could offer either financial muscle or wider market reach, it would be challenging in our view to develop a project of that size on its own given current sector headwinds.

Separately, it has raised about RM127.6 million following a private placement exercise of 130.23 million new shares at 98 sen or about 9.1% of its enlarged share capital. The new shares were subscribed by Sweetwater SPV Sdn Bhd, a company owned by Tan Sri Wan Azmi Wan Hamzah and his wife.

With the completion of the private placement exercise, the group would be embarking on the next phase of fund-raising, looking at raising a minimum of RM123 million under the proposed rights issue.

We understand that the latest equity raising should be enough to address the group’s near-term funding needs and future capital requirement could either come from disposing of its non-core assets (combined market price in excess of RM650 million) or monetisation of its STP2A via outright sale/JV. — PublicInvest Research, March 25