E&O (3417) - Eastern & Oriental - Shares go ex for bonus and free warrants
Target RM2.25 (Stock Rating: HOLD)
E&O shares went ex for the 1-for-10 bonus and 1-for-5 free warrants today. This increased the share capital by 10% to 1.48bn shares. The bonus and free warrants explain E&O's share price rebound in recent weeks as investors view such exercises positively. E&O has yet to embark on the issuance of RM500m private debt securities (PDS) and will likely finalise it in 1Q15. No changes to our earnings forecasts but core EPS is adjusted for the bonus. Also, no changes to our target basis of 50% discount to RNAV but the ex-all target price rises slightly as we raise RNAV for the increase in value of the Penang landbank. Maintain Hold and our preference for Mah Sing and Eco World given exposure to Penang.
What Happened
The share price of E&O has adjusted today for the 1-for-10 bonus issue and 1-for-5 free warrants. Up to 114.1m bonus shares and 228.2m warrants will be issued. The warrants have an exercise price of RM2.60 and expire in 2019.
What We Think
The bonus and warrants act as a sweetener to the potential dilutive effect of the PDS. Nonetheless, the dilutive effect of the PDS should be mitigated by the high conversion price likely to be set. E&O plans to initially undertake RM350m in PDS to fund the equity portion of the reclamation works on the 760-acre Seri Tanjung Pinang Phase 2 (STP2). It may issue another RM150m at a later date if the need arises. Net net, we are neutral on the bonus, free warrants and PDS. The PDS is necessary to fund reclamation works, which could total RM3bn-3.5bn.
What You Should Do
Although newsflow from reclamation works on STP2 could help keep interest in E&O high, we believe most of the good news has already been reflected in the share price. E&O was one of the best-performing larger cap developers in 2014 and its valuations are no longer cheap. Its earnings need to catch up with its share price but 2015 could be a trying year for most developers on the back of the likely post-GST environment of weaker sales. For exposure to the property sector, we prefer developers with strong execution track records, such as Mah Sing or Eco World. Both companies posted sales of over RM3bn in 2014 while many other developers suffered weaker sales.
Source: CIMB Daybreak - 21 January 2015
Target RM2.25 (Stock Rating: HOLD)
E&O shares went ex for the 1-for-10 bonus and 1-for-5 free warrants today. This increased the share capital by 10% to 1.48bn shares. The bonus and free warrants explain E&O's share price rebound in recent weeks as investors view such exercises positively. E&O has yet to embark on the issuance of RM500m private debt securities (PDS) and will likely finalise it in 1Q15. No changes to our earnings forecasts but core EPS is adjusted for the bonus. Also, no changes to our target basis of 50% discount to RNAV but the ex-all target price rises slightly as we raise RNAV for the increase in value of the Penang landbank. Maintain Hold and our preference for Mah Sing and Eco World given exposure to Penang.
What Happened
The share price of E&O has adjusted today for the 1-for-10 bonus issue and 1-for-5 free warrants. Up to 114.1m bonus shares and 228.2m warrants will be issued. The warrants have an exercise price of RM2.60 and expire in 2019.
What We Think
The bonus and warrants act as a sweetener to the potential dilutive effect of the PDS. Nonetheless, the dilutive effect of the PDS should be mitigated by the high conversion price likely to be set. E&O plans to initially undertake RM350m in PDS to fund the equity portion of the reclamation works on the 760-acre Seri Tanjung Pinang Phase 2 (STP2). It may issue another RM150m at a later date if the need arises. Net net, we are neutral on the bonus, free warrants and PDS. The PDS is necessary to fund reclamation works, which could total RM3bn-3.5bn.
What You Should Do
Although newsflow from reclamation works on STP2 could help keep interest in E&O high, we believe most of the good news has already been reflected in the share price. E&O was one of the best-performing larger cap developers in 2014 and its valuations are no longer cheap. Its earnings need to catch up with its share price but 2015 could be a trying year for most developers on the back of the likely post-GST environment of weaker sales. For exposure to the property sector, we prefer developers with strong execution track records, such as Mah Sing or Eco World. Both companies posted sales of over RM3bn in 2014 while many other developers suffered weaker sales.
Source: CIMB Daybreak - 21 January 2015
