E&O - Target price

Target Price: 2.90 (DBS Vickers), 2.60 (RHB Research)

The company is believed to be closing in on a deal that will change its valuation landscape.

 Sime Darby Bhd owns some 31% stake in E&O

E&O has been overshadowed by smaller Penang developers such as Asas Dunia Bhd.

 It is also said to be preparing for a public dialogue on August 24 2013 on its detailed environmental impact assessment (DEIA) study, which it is conducting now (15 Aug 2013).

The dialogue will highlight what the company has in mind for the second phase of its Seri Tanjung Pinang (STP) development. The session also intends to showcase the future of Penang’s coastline, along with related traffic and environmental issues. The timing of the dialogue seems to suggest that the pace has picked up for the STP project’s second phase to take its course.

 Observers expect the DEIA to be concluded in two to three months from the date of the dialogue.

This means that by end Nov 2013, E&O could have all the approvals in place to start reclamation work on STP Phase 2. If so, this would be hugely positive for E&O as estimated the GDV of the project as a massive rm25 billion to rm30 billion.


To recap, E&O is finally making headway with its Seri Tanjung Pinang Phase 2 project following a lull in activity after receiving the approval in principle for reclamation works for 760 acres of land in Tanjong Tokong on the northeast coast of Penang in April 2012.

Its subsidiary Tanjung Pinang Development Sdn Bhd in 1992 received the excusive right from the Penang government to reclaim and develop 980 acres in Tanjong Tokong.

The company has reclaimed about 240 acres under Phase 1 of Seri Tanjung Pinang to date (Aug 2013) and is expecting to launch the remaining land parcels over the next two to three years from 2013.

STP 2 will underpin the long term growth beyond FY2016. The masterplan for STP 2 is expected to be revealed in the third quarter 2013. Tender for reclamation works is likely to take place in the fourth quarter 2013 and the works will begin in early 2014. Land will be reclaimed in phase and for a start, 200 acres have been planned.

The project was to have a GDV of rm12 billion.

In the concession agreement, with the Penang government, E&O is required to make available 10% of the net saleable land to the state.

Sime Dary is currently (Aug 2013) the company’s single largest shareholder holding 32% equity stake in E&O.

Meanwhile E&O is expected to embark on aggressive landbanking in KL, Johor and overseas on top of the STP reclamation project.

These could raise net gearing to as high as 100% from 35% currently (Aug 2013) but can be managed via joint ventures and potential equity fund raising.