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Friday, September 18, 2015

Affin Hwang Research keeps Buy call on Eastern & Oriental

KUALA LUMPUR: Affin Hwang Research has maintained its Buy call on Eastern & Oriental (E&O) with a target price of RM2.54, it said in a note on Friday.

The research house said E&O is poised to award the reclamation contract for its Seri Tanjung Pinang (STP) Phase 2A project soon. The Penang Transport Master Plan (PTMP), which would be managed by the Gamuda-led consortium, should improve infrastructure and enhance the value of Penang property in the long run. 
The delay in concluding negotiations has been due to the intricacy of the reclamation contract pricing, which is expected to be more attractive due to the fall in construction and fuel costs. It is also in final negotiations with banks to provide financing for the project. 
The bank borrowings would only be drawn down as the reclaimed land is delivered by the contractor in stages.

Affin Hwang said once a reclamation contractor is appointed, E&O would seek a strategic partner for the project that would take up to an effective 27.8% stake in STP Phase 2A. 

E&O would retain at least a 51% stake while the Penang state government would hold the remaining 21.2% interest. E&O targets to secure a partner within six months to provide financial support for the project and partially unlock the value of its land reclamation rights.

"E&O plans to seek shareholder approval for the listing of E&O Plc on the AIM market of the London Stock Exchange at the upcoming AGM/EGM on Sept 29, 2015.

"E&O’s stake in E&O Plc would be reduced to 30% from 100% while group net gearing would fall to 0.38 times from 0.6 times as at FY15. We estimate that the listing of E&O Plc will potentially enhance E&O’s RNAV by 9% to RM4.52," it noted.

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