E&O PLANS MORE ASSET SALES

PublicInvest looks favourably on firm’s commitment to reduce debt

EASTERN & Oriental Bhd (E&O) is working on disposing of more of its non-core assets, including a retail building and hotel, that could collectively be sold for more than RM900 million, to lighten its debt load.

Public Investment Bank Bhd (PublicInvest) disclosed this after a recent meeting with E&O’s management.

Its latest asset monetisation plans follow a recent announcement that E&O had roped in Retirement Fund Inc (KWAP) as its strategic partner for its Sri Tanjung Pinang Phase 2 (STP2A) development. The tie-up will raise some RM900 million for the property developer.

PublicInvest said E&O’s total capital commitment for STP2A is estimated at RM1.8 billion, including infrastructure costs, and it still had 205ha remaining to be reclaimed in other phases.

The firm is positive that with the possible disposals of Straits Quay Retail and Lone Pine Hotel, both in Penang, as well as a plot of land here, it will help manage E&O’s gearing and liquidity.

“Straits Quay Retail has a book value of RM233 million, while Lone Pine Hotel has a book value of RM69 million.

“Certain non-strategic landbanks such as a 0.3ha plot in Jalan Liew Weng Chee here has a market value of RM55 million.

“If the price is right, it will also offload its undeveloped overseas landbank, for example in Hammersmith and Esca, which were purchased for RM450 million.

“Hence, the potential proceeds from the resource conversion are estimated to be about RM900 million,” the firm said.

“Together with KWAP’s investment, the total capital of RM1.8 billion will prove handy for its capital expenditure and help it focus on generating cash and strengthening its balance sheets.”

PublicInvest believes E&O still needs to look for partners that could open new markets for its mammoth STP2 development, although it views the emergence of KWAP as the company’s 20 per cent equity partner for STP2A as a positive.

“Sales for its Andaman Condominium are still slow. Its average selling price of between RM1,300 and RM1,400 psf is incidentally also the touted selling price for STP2A.

“Hence, we believe that unless the company starts selling in new markets, it will be challenging for STP2 to reap sales benefits, given the currently tough trading environment.” It said.

PublicInvest had a “neutral” call on E&O, with a higher target price of RM2 from RM1.80 previously.

E&O closed 1.05 per cent lower to RM1.89 from RM1.91 on Tuesday, with 923,500 shares changing hands.

...the potential proceeds from the resource conversion are estimated to be about RM900 million. Together with KWAP’s investment, the total capital of RM1.8 billion will prove handy for its capital expenditure and help it focus on generating cash and strengthening its balance sheets.

Public Investment Bank Bhd