AmResearch reaffirms 'buy' call on E&O

KUALA LUMPUR: AmResearch understands that Eastern & Oriental (E&O) is still in negotiations with Sime Darby on the terms acquisition of Elmina West, including the price of the 135 acres of land.

"E&O recently started to access its major shareholder, Sime Darby's vast landbank. In September 2013, E&O entered into a Memorandum of Agreement (MoA) with Sime Darby to acquire 135 acres of freehold land in Elmina West to develop a wellness township.

"Land value at Elmina will enhance given the improved connectivity and accessibility to Elmina upon the completion of the new DASH Highway in 2016. This would provide a direct connection to Penchala Link/Mont Kiara and reduce the travelling time to 15 minutes.

"The expiry date of the exclusivity period has been extended to 24 June 2014. But there is still no indication of the pricing and estimated gross development value (GDV) of the land."

AmResearch maintains its valuation and forecast on E&O for now, which does not incorporate any assumption of the 135 acres of land at Elmina West.

AmResearch also reaffirms its BUY recommendation on E&O with an unchanged fair value of RM3.00 per share

"We advocate investors to accumulate E&O ahead of the Department of Environment approval for the Detailed Environment Impact Assessment study for Seri Tanjung Pinang 2 (STP2), which is expected to be granted in second quarter of 2014.

"This is supported by the tripling of net asset value (NAV) and deep development potential of the sizeable 760 acres of STP2 land given the firm establishment of Seri Tanjung Pinang 1 (STP1).

"As E&O's timeline draws closer to the crystallisation of STP2, there may be a narrowing of the current NAV discount of 53 per cent via an accelerated share price discovery of its fair value."