MIDF Research upgrades E&O to Buy, target price RM 1.70

KUALA LUMPUR (April 24): MIDF Research has upgraded Eastern & Oriental Bhd to a buy with a target price of RM 1.70 after the company proposed to acquire an office cum retail building known as Princes House, located at 37-39 Kingsway, London WC2b 6TP, United Kingdom.

In a note Tuesday, MIDF Research said The purchase consideration is £20.3m which translates to about RM100.9m (based on £1:RM4.983 @ 23 Apr 12).

The research house said that assuming the remaining 90% of the building is fully leased out with rental rate similar to that paid by the ground floor tenant, Prince House would generate gross rental yield of about 6.5%.

However, MIDF Research said it did not expect the vacant space to be filled up so soon.

“At current juncture, E&O has not disclosed its future plans for the building. Hence, pending further details, we are maintaining our earnings forecast for E&O.

“We are upgrading our Recommendation for E&O to BUY with an unchanged target price of RM1.70 which is a 20% discount against RNAV of RM2.12,” it said.

MIDF Research said the recent retracement of property companies’ share prices has rendered E&O’s share price attractive, with projected total return of more than 15%.

“At yesterday’s closing price of RM1.42, investors would be paying 38% lower than what Sime Darby paid for its stake in E&O at RM2.30 per share,” it said.



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HDBSVR maintains hold on E&O, ups TP to RM1.80

KUALA LUMPUR (Feb 28): HwangDBS Vickers Research said Eastern & Oriental Bhd’s 3QFY12 net profit came in at RM15.4 million (up 106% on-year excluding exceptionals, up 11% on-quarter), bringing 9MFY12 core earnings to 60-86% of its and consensus expectations.

It said on Tuesday that E&O could still meet management’s profit target (RM250 million to RM300 million over FY11-12 RM150 million to RM200 million per annum thereafter).

HDBSVR said the factors would be on the back of record RM930 million unbilled sales and new launches.

The research house said E&O and Sime Darby have held their second monthly collaboration meeting and we expect more detailed plans to be unveiled by 1H12.

“Cut FY12-13F earnings by 6%-8% to push forward profit recognition for Andaman condos. Maintain Hold, raise TP to RM1.80 (from RM1.50) based on a lower 40% discount (from 50%) to RNAV of RM3.05 as STP continues to see strong demand amid a softer property market.

“We have assumed RM265psf for STP’s remaining landbank (including Phase 2), 10% premium to RM240psf Ivory PROPERTIES [] paid for Bayan Mutiara given STP’s more prime location (sea-facing),” said HDBSVR.



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Stocks to watch: CIMB, Cocoaland, TDM, Kimlun

KUALA LUMPUR (Feb 27): Market sentiment is expected to stay cautious on Tuesday as global equities pull back on concerns of strong oil prices’ weighing down already fragile economies in Europe.

At Bursa Malaysia, the corporate results should provide leads for investors as the reporting season draws almost to a close.

Among the stocks to watch are CIMB Group Holdings Bhd, COCOALAND HOLDINGS BHD [], TDM BHD [], Kimlun Corporation Bhd, Eastern & Oriental Bhd (E&O), Petronas Chemicals Bhd, HONG LEONG BANK BHD [], DRB-HICOM BHD [] and BOUSTEAD HOLDINGS BHD [].

CIMB posted net profit of RM1.132 billion in the fourth quarter ended Dec 31, 2011, up 29.8% from RM872.61 million a year ago. Its revenue was 6.1% higher at RM3.381 billion compared with RM3.185 billion. It announced a second interim dividend of 10.0 sen amounting to a net payment of RM743 million.

For FY11, it posted a record net profit of RM4.031 billion for 2011, or up 15.1% when compared with RM3.500 billion in FY10. The FY11 net return on equity (ROE) was also a record high 16.4%, but below the group’s full-year target of 17%.

Cocoaland’s earnings soared 103.2% to RM8.72 million for the fourth quarter ended Dec 31, 2011, from RM4.29 million a year ago, due to an increased selling price and higher trading volume of its products. It announced a second interim dividend of 6% per share.

TDM's earnings jumped 44.5% to RM44.34 million in the fourth quarter ended Dec 31, 2011, from RM30.68 million a year ago, on the back of higher crude palm oil (CPO) production and CPO prices.

Kimlun’s order book has increased to RM1.45 billion with the latest contract to build an extension to a shopping mall in Johor Baru for RM71.99 million. Its unit accepted the letter of award from Taman Sutera Development Sdn Bhd for the project.

E&O posted a strong set of results for the third quarter ended Dec 31, 2011 with earnings up 385% to RM15.36 million from RM3.16 million a year ago boosted by stronger property’s sales. Its revenue jumped 221% to RM123.12 million from RM41.08 million.

Petronas Chemicals Bhd posted total comprehensive income of RM735 million in the third quarter ended Dec 31, 2011, down 17.4% from RM890 million a year ago. Profit for the quarter was lower by RM172 million or 17% at RM826 million.

For the nine-month period, its net profit was RM2.62 billion while revenue was RM11.88 billion due to higher prices for olefins and derivatives and fertilisers and methanol.

Hong Leong Bank Bhd’s earnings rose 30.8% to RM381.37 million in the second quarter ended Dec 31, 2011 from RM291.43 million. Its revenue surged 66.1% to RM1.003 billion from RM603.96 million. Its earnings per share were 24.22 sen compared with 20.07 sen. It declared an interim dividend of 11 sen compared with nine sen.

Malaysian Rating Corp Bhd (MARC)has has revised the outlook on DRB-HICOM Bhd's (DRB-Hicom) AA-IS sukuk rating on its RM1.8 billion Islamic Medium Term Notes (IMTN) programme to negative from stable.

It said on Monday the outlook revision recognises the potential weakening of DRB-Hicom's near-to-intermediate term financial profile due to its debt-funded acquisition of PROTON HOLDINGS BHD [] (Proton).

Boustead Holdings Bhd’s net profit fell 8.6% to RM192.30 million in the fourth quarter ended Dec 31, 2011 from RM208.90 million a year ago.

Its revenue jumped 51% to RM2.554 billion from RM1.689 billion. Earnings per share were 18.59 sen compared with 20.20 sen. It proposed dividend of 9.0 sen.

For FY11, its earnings rose 13.6% to RM610.60 million from RM537.50 million in FY10. Its revenue increased 38.4% to RM8.55 billion from RM6.18 billion.



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E&O 3Q net profit up 385% to RM15.3m on yr, 9-month RM81m

KUALA LUMPUR (Feb 27): Eastern & Oriental Bhd posted a strong set of results for the third quarter ended Dec 31, 2011 with earnings up 385% to RM15.36 million from RM3.16 million a year ago boosted by stronger property’s sales.

It said on Monday its revenue jumped 221% to RM123.12 million from RM41.08 million. Earnings per share were 1.4 sen compared with 0.3 sen.

E&O said the revenue of RM123.12 million and a profit before tax of RM27.67 million for the quarter ended Dec 31, 2011 was higher when compared with the immediate preceding quarter ended Sept 30, where group revenue was RM82.60 million and profit before tax of RM18.202 million.

The group attributed the higher revenue and profits to its PROPERTIES [] segment, which had a higher percentage recognition from current locked-in sales and the steady development progress of its projects.

Sales from its newly launched Seri Tanjung Pinang also contributed to the increased performance.

For the nine-months ended Dec 31, 2011, the net profit jumped 338% to RM81.09 million from RM18.47 million while the revenue increased by 83.8% to RM281.60 million from RM153.21 million.

“The increase in revenue was mainly from properties segment which registered an increase of RM118.38 million.The hospitality and restaurants segment also shown an increase of RM10.058 million, whereas the investment holding and others segment shown a slight decrease,” it said.



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SC committee shot down general offer for E&O

KUALA LUMPUR: The Securities Commission’s (SC) task force and its senior management recommended that Sime Darby Bhd trigger the mandatory offer obligation for the remaining shares in Eastern & Oriental Bhd (E&O). However, this recommendation was not agreed upon by the takeovers and mergers committee.

This was revealed in the affidavit filed by SC member Datuk Francis Tan Leh Kiah in opposing the judicial review filed by Michael Chow Keat Thye, a minority shareholder of E&O.

The task force recommended that a new party acting in concert be formed between Sime Darby’s wholly-owned Sime Darby Nominees Sdn Bhd (SDN) and Datuk Terry Tham. Both collectively held more than 33% of the voting shares in E&O.

However, this recommendation was not agreed upon by the takeovers and mergers committee. Via a majority decision, the committee decided that SDN and Tham were not persons acting in concert and hence no new concert party was formed that could trigger a mandatory offer.

The takeovers and mergers committee comprises SC chairman Tan Sri Zarinah Anwar, SME Bank chairman Datuk Gumuri Hussain, finance ministry’s deputy secretary-general treasury (policy) Datuk Dr Mohd Irwan Serigar Abdullah, former Inland Revenue Board director-general/CEO Tan Sri Hasmah Abullah and Tan, who is a consultant at Azman, Davidson & Co, Advocates & Solicitors.

The affidavit said Zarinah had recused herself from the onset of the inquiry as her husband Datuk Azizan Abdul Rahman is the chairman of E&O, while Irwan did not attend the meeting on Oct 10, 2011.

Tan said he and Gumuri acted as co-chairmen. The only other member who attended the meeting held from 4pm to 6.45 pm was Hasmah.

The task force also recommended that the three vendors Tham, Tan Sri Wan Azmi Wan Hamzah and GK Goh Holdings Ltd were not persons acting in concert, and collectively did not have control of E&O that could be passed to SDN in pursuant to SDN’s acquisition.

This recommendation was unanimously agreed by the takeovers and mergers committee.

Two issues were considered by the task force. First if SDN’s acquisition of the 30% stake in E&O was an acquisition from a controlling vendor of part of voting shares, and second whether a new group of persons acting in concert was formed between SDN and Tham upon the acquisition.

The SC also applied to the court for Justice Tuan Abang Iskandar Abang Hashim to recuse himself as the sitting judge as he was seconded to the SC enforcement division during his tenure in the Attorney-General’s Chambers.

After serving in the SC on secondment for two years, Abang Iskandar had opted for retirement and joined the commission on a full-time basis in 2006 where he held the position of executive director of the enforcement division.

The SC said Abang Iskandar is a senior management of the commission and is familiar with the internal workings and individuals who sit at the investigative committee level.

“In the circumstances, there is a real danger of bias prevalent in so far as the present dispute is concerned,” said the SC in its application.

To recap, Chow filed for judicial review against the SC last December after the regulator decided not to compel Sime Darby to make a general offer for all remaining shares in E&O. He is seeking a court order to compel the SC to revoke the waiver of a general offer.

This came after Sime Darby’s contentious purchase of a 30% stake in E&O from its major shareholders — E&O managing director Tham, Wan Azmi and GK Goh Holdings.

The deal sparked a debate whether Sime Darby could be deemed to be acting in concert with the three vendors, a claim which Sime Darby and the three E&O shareholders denied.

After investigating the matter, the SC ruled in October last year that the plantations-based conglomerate’s acquisition of the 30% stake did not trigger a mandatory offer obligation for E&O.

The SC also found no collusion between Sime Darby and Tham with regard to the deal, where Sime Darby paid RM766 million for the 30% block.

At RM766 million, the deal valued E&O at RM3.20 per piece or a 59% premium to E&O’s share price when the deal was announced on Sept 9 last year.


This article appeared in The Edge Financial Daily, January 31, 2012.



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CIMB Research has technical buy on E&O at RM1.52

KUALA LUMPUR (Jan 18): CIMB Equities Research has a technical buy on Eastern & Oriental at RM1.52 at which at which it is trading at a FY13 price-to-earnings of 13.8 times and price-to-book value of 1.2 times.

“The stock broke out of its consolidation triangle pattern yesterday on strong volume, suggesting that buying interest has started to pick up. The rally also took out its previous swing high of RM1.48 along the way,” it said.

CIMB Research said there is a good chance that prices may re-rate towards RM1.60 and RM1.72 in the near term.

“However, investors should always adopt a stop loss strategy when buying into this stock, preferably at between RM1.48-RM1.44 depending on one’s risk appetite,” it said.

The research house said the indicators for E&O share price are improving. MACD signal line has staged a positive crossover while RSI has also hooked upward.



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Sime to intervene in E&O minority’s suit against SC

KUALA LUMPUR: Sime Darby Bhd has received the green light to intervene in a legal challenge that an Eastern & Oriental Bhd (E&O) minority shareholder has filed against the Securities Commission (SC). Sime Darby has just acquired a 30% stake in E&O.

In a filing with Bursa Malaysia yesterday, Sime Darby said the court had allowed a bid by its unit, Sime Darby Nominees Sdn Bhd, to intervene in the judicial review application by E&O minority shareholder Michael Chow Keat Thye against the SC.

Sime Darby had to file the application seeking court permission to intervene in Chow’s application for judicial review because only the SC was named as a respondent in the matter.

Sime Darby had earlier said it was seeking to intervene in the judicial review proceedings on the basis that it should be afforded the opportunity to be heard during the proceedings, given that its legal and commercial interest will be directly affected by it.

To recap, Chow filed for judicial review against the SC in late December last year after the regulator decided not to compel Sime Darby to make a general offer for all remaining shares in E&O.

This came after Sime Darby’s contentious purchase of a 30% stake in E&O from its major shareholders — E&O managing director Terry Tham Ka Hon, GK Goh Holdings and Tan Sri Wan Azmi Wan Hamzah.

The deal sparked a debate as to whether Sime Darby could be deemed to be acting in concert with the three vendors, a claim which Sime Darby and the three E&O shareholders denied.

After investigating the matter, the SC ruled in October last year that the plantations-based conglomerate’s acquisition of the 30% equity interest in E&O did not trigger a mandatory offer obligation.

The SC also found no collusion between Sime Darby and Tham with regard to the deal, which saw Sime Darby pay RM766 million for the 30% block.

At RM766 million, the deal valued E&O at RM2.30 a piece or a 59% premium to E&O’s share price when the deal was announced on Sept 9 last year.

In his application for judicial review, Chow is reportedly seeking a court order to compel the SC to revoke its waiver of a general offer.

Chow is reportedly arguing that the premium which Sime Darby paid for the 30% block was clearly to gain control of the company.


This article appeared in The Edge Financial Daily, January 13, 2012.



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Khazanah, Temasek in talks with bank to finance Singapore projects

PUTRAJAYA (Jan 5): Khazanah Nasional Bhd (Khazanah) and Temasek Holdings (Pte) Ltd (Temasek) are currently in the midst of discussions with banks to provide financing for M+S Pte Ltd development projects in Singapore.

M+S, a company owned 60:40 by Khazanah and Temasek respectively, is set to develop land parcels in Marina South and Ophir-Rochor with an estimated gross development value of RM27 billion (S$11 billion).

The developments in these areas are expected to be completed over the next six years, with CONSTRUCTION [] expected to commence in 2013, according to a joint statement released by Khazanah and Temasek after the bilateral meeting between Prime Minister Datuk Seri Najib Tun Razak and his Singapore counterpart Lee Hsien Loong here on Thursday.

It added that M+S has appointed architects and consultants for the Marina South and Ophir-Rochor developments and submitted the designs for provisional planning approvals in the last quarter of last year.

Meanwhile, Pulau Indah Ventures Sdn Bhd (Pulau Indah), a 50:50 joint venture between Khazanah and Temasek, will develop the “Urban Wellness” project on a 2.02 ha site in Medini North.

It will also develop the 85.5 ha “Resort Wellness” project in Medini Central.

The gross development value of the projects, which include the development of a wellness centre, serviced residences, a corporate training centre, commercial, retail and residential and wellness-related offerings, is estimated at approximately RM3.0 billion.

For the Urban Wellness project, Pulau Indah has appointed CapitalLand as project manager via the exchange of the Project Management Agreement.

The project is expected to commence in 2013 and completed over the next four years.

For the Resort Wellness project, Pulau Indah and an indirect wholly-owned subsidiary of Eastern and Oriental Berhad (E&O), had exchanged the Shareholders’ Agreement in relation to Nuri Merdu Sdn Bhd, the 50:50 joint venture vehicle for the Resort Wellness project.

E&O will also carry out the project management and marketing for the Resort Wellness site.

The architect, master planner and key consultants havwe been selected for the project, with the initial phase expected to commence in 2013 and the whole project to be completed in five years.

Earlier, Najib and Lee were briefed on the concept for both the Urban Wellness and Resort Wellness developments. - Bernama



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Up to RM1m in furniture vouchers for St Mary Residences buyers

KUALA LUMPUR: The developer of St Mary Residences in Kuala Lumpur is collaborating with XTRA, a premium branded furniture importer and retailer, to offer furniture vouchers to new purchasers of units in the serviced apartment project.

“As we approach the handover next year we have been receiving numerous enquiries from existing and potential purchasers on possible furnishing solutions. As a response to this demand, we have tied up with a reputable supplier to provide attractive furniture packages to our St Mary buyers,” said Eastern & Oriental Bhd (E&O) deputy managing director Eric Chan Kok Leong. The development is a joint venture between E&O and the Lion Group.

The offer is for the 15% remaining units available for sale, most of which are bumiputera quota units.

The promotion began Nov 15 and ends Dec 31. To be eligible for the vouchers worth between RM70,000 and RM1 million, potential buyers must be registered with XTRA on its promotional website prior to their purchase.

All transactions must be made via Mergexcel Property Development Bhd, a joint-venture company between the Lion Group and E&O that is undertaking the St Mary Residences project.

The serviced apartment project comprises 457 units priced from RM1.5 million to RM11.08 million with sizes from 1,131 to 6,759 sq ft. Buyers have a choice of six designs from Studio Suites, City Suites, Metro Suites and Rooftop Penthouses.

With a gross development value (GDV) of RM780m, St Mary Residences is about 70% complete.

With a gross development value (GDV) of RM780 million, St Mary Residences is about 70% complete, putting it on track for completion in mid-2012. Developed on the former site of St Mary’s School in Kuala Lumpur’s Golden Triangle, St Mary Residences comprises three towers, one of which is slated to be a luxury service residence run by a renowned hotel manager.

E&O has a total of 1,905.5 acres (771ha) of landbank in Peninsular Malaysia with an estimated potential GDV of RM20 billlion — 330.5 acres in Kuala Lumpur, 1,365 acres in Penang and 210 acres in Iskandar Malaysia, Johor.

Looking ahead, Chan said E&O has several projects set to launch in the next 12 to 18 months. The Andaman Series condominiums in Seri Tanjung Pinang, Penang, will be open for sale in 1Q12. In the south, the group is looking to introduce a wellness township in Iskandar Malaysia in 4Q12. The mixed development will comprise terraced and semi-detached houses, bungalows, serviced apartments and condominiums, wellness centres and retail and commercial properties.

The developer’s upcoming projects in Kuala Lumpur City Centre in Jalan Yap Kwan Seng and in Kemensah Heights are in various stages of planning.


This article appeared on the Property page, The Edge Financial Daily, December 2, 2011.



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E&O: Hot property in Penang

Eastern & Oriental Bhd (Dec 1, RM1.41)
Maintain outperform at RM1.39 with revised target price of RM2 (from RM1.98): Although annualised 1HFY12 core net profit was only 30% of our forecast, it is in line as future quarters should be stronger. We make no change to our target basis of 30% realisable net asset value (RNAV) discount or “outperform” call. But we adjust our target, RNAV and earnings per share for housekeeping and ICSLS conversion.

E&O sold RM380 million worth of properties during 1HFY12, 52% more than its RM250 million sales in 1HFY11. Unbilled sales leaped from RM650 million a year ago to RM880 million. The bulk of 1HFY12 sales came from Penang, with the remainder coming from unsold units of St Mary Residences in Kuala Lumpur. As expected, E&O did not propose a 2Q dividend, in line with last year’s practice and our expectations.

Take-up rates for both the St Mary Residences and Phase 1 of the Penang Quayside condos have reached 80%. Phase 2 of the Penang condos will be launched this month and indications are that demand should be strong.

Although minority shareholders may be disappointed that there was no general offer, we view positively the recent emergence of Sime Darby Bhd as a 30% shareholder of E&O. This provides E&O with a strong parent which could come in handy for the upcoming Phase 2 of Seri Tanjung Pinang. Also, we would not discount the possibility of joint ventures between the two companies as Sime Darby has 37,000 acres of undeveloped land with an estimated gross development value of RM100 billion. E&O’s expertise in high-end residential projects will provide a good fit with Sime, especially for its landbank in the Klang Valley. — CIMB Research, Dec 1


This article appeared in The Edge Financial Daily, December 2, 2011.



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Stocks to watch: Maxis, Axiata, E&O, Tanjung, PJI

KUALA LUMPUR (Dec 1): After the flurry of corporate results for the quarter ended Sept 30, 2011, stocks which could see trading interest on Thursday include Maxis Bhd, Axiata Group Bhd and Eastern & Oriental Bhd (E&O).

Other companies which could also come under focus following fresh contracts are PJI HOLDINGS BHD [], TANJUNG OFFSHORE BHD [] and MALAYSIAN RESOURCES CORPORATION BHD (MRCB).

Maxis’ earnings fell 10.6% to RM537 million in the third quarter ended Sept 30 from RM610 million a year ago on higher administrative expenses and network operation costs. Revenue was 1.3% higher at RM2.244 billion from RM2.216 billion a year ago, while earnings per share were 7.2 sen compared with 8.0 sen. It declared a third interim single-tier tax exempt dividend of 8.0 sen per share.

Meanwhile, Axiata’s earnings fell 7.7% to RM589.62 million in the third quarter ended Sept 30, 2011 from RM639.12 million a year ago on foreign exchange translation losses and higher costs. Net foreign exchange losses surged to RM43.91 million compared with gains on financing activities of RM71.96 million a year ago.

E&O saw its earnings surge 172% to RM13.83 million from RM5.08 million a year ago. Its revenue increased by 25.5% to RM82.60 million from RM65.81 million while earnings per share were 1.27 sen compared with 0.48 sen.

Tanjung Offshore’s subsidiary, Tanjung Maintenance Services Sdn Bhd has secured a RM43 million contract from Petronas Carigali Sdn Bhd. The contract was to provide maintenance services for mechanical rotating equipment at all offshore platforms operated by Petronas Carigali in the Sarawak operations region .

PJI Holdings Bhd’s unit has secured two contracts worth RM59.64 million at the KLIA2 involving the low voltage system for several locations at the KLIA2.

Its unit P.J. Indah Sdn Bhd had accepted the letter of award from BINA PURI HOLDINGS BHD [] to formalise the sub-contract valued at RM25.16 million.

P.J. Indah had also accepted a RM34.64 million contract from UEM CONSTRUCTION [] Sdn Bhd for the design, supply and maintenance of the low voltage system, uninterruptible power supply and lightning protection system at KLIA2.

MRCB has secured a RM40.3 million contract to carry out coastal protection works at the Sungai Perai river mouth. MRCB said it had received the letter of award from the Department of Irrigation and Drainage for the third phase of the project.

FABER GROUP BHD [] posted net losses of RM26.87 million in the third quarter ended Sept 30, 2011 compared with net profit of RM29.01 million a year ago. The losses were mainly due to the recognition of costs amounting to RM44.5 million for works completed for the projects in the United Arab Emirates (UAE) where the corresponding revenue was not recognised as it could not be measured reliably.

KUB MALAYSIA BHD [] posted net loss of RM12.86 million in the third quarter ended Sept 30, a vast contrast from the net profit of RM2.49 million a year ago. KUB had undertaken impairment assessments on its assets of underperforming subsidiaries and decided to provide impairment losses of RM14.70 million.



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Eastern & Oriental 2Q earnings jump 172% to RM13.8m

KUALA LUMPUR (Nov 30): Eastern & Oriental Bhd (E&O) saw its earnings surge 172% to RM13.83 million from RM5.08 million a year ago.

It said on Wednesday that revenue increased by 25.5% to RM82.60 million from RM65.81 million while earnings per share were 1.27 sen compared with 0.48 sen.

For the first half, its earnings more than tripled, or 329% to RM65.73 million from RM15.31 million in the previous corresponding period while revenue was 41.3% higher at RM158.48 million from RM112.12 million.



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Sime Darby’s Bakke appointed E&O director

KUALA LUMPUR: Sime Darby Bhd’s president and group chief executive Datuk Mohd Bakke Salleh has emerged as a non-independent and non-executive director of property outfit Eastern & Oriental Bhd (E&O).

According to a filing with Bursa Malaysia yesterday, Bakke was appointed the nominee director representing Sime Darby, which holds a 30% stake in E&O.

Bakke is joined by Sime Darby group chief operating officer Datuk Abdul Wahab Maskan who has been appointed E&O’s non-independent and non-executive director.

E&O also saw the resignation of non-independent and non-executive director Thomas Teo Liang Huat.

Sime Darby became E&O’s single largest shareholder when it acquired the 30% stake for RM766 million cash or RM2.30 per share from E&O’s managing director Datuk Terry Tham, Tan Sri Wan Azmi Hamzah and GK Goh Holdings of Singapore in September.

The share purchase by Sime Darby prompted the Securities Commission (SC) to investigate the requirement for the conglomerate to extend a mandatory general offer (MGO) for the remaining 70% stake in E&O.

However, SC later ruled that Sime Darby was not required to extend a MGO as it had found no collusion between Sime Darby and Tham regarding the deal.

While Sime Darby has not revealed its plans for E&O, analysts said it is most likely to participate in the latter’s Seri Tanjung Pinang 2 project in Penang, which has a gross development value of RM12 billion.

E&O rose two sen to RM1.33 while Sime Darby gained 15 sen to close at RM8.81 yesterday.


This article appeared in The Edge Financial Daily, November 30, 2011.



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Sime’s E&O premium to rise?

Sime Darby Bhd’s already expensive acquisition of Eastern & Oriental Bhd’s (E&O) shares could look even more pricey after the surprise announcement last night that the latter will be converting an estimated 220.11 million loan stocks into ordinary shares before year-end.

E&O announced on Bursa Malaysia yesterday that it will be converting all its remaining 10-year 8% irredeemable convertible loan stocks (ICSLS) issued in 2009 to new ordinary stock units of RM1 each on Dec 27. The number of oustanding ICSLS was not indicated, but totalled 220.11 million as at June 30, 2011.

When the 220.11 million shares enter the market at the end of the year, the resulting dilution in book value per share coupled with a potentially large share overhang could well make Sime Darby’s RM766 million stake in E&O come at a greater premium as the price-to-book value of its acquisition rises and the share price falls.

To recap, Sime Darby had bought 273 million ordinary shares and 60 million ICSLS from three vendors — E&O managing director Datuk Terry Tham, Tan Sri Wan Azmi Hamzah and GK Goh Holdings of Singapore at a 60% premium to the market price, or RM2.30 per share.

Issued in 2009 as part of a fundraising exercise, the ICSLS are due only in 2019. However, E&O said that based on conditions stipulated in the Trust Deed dated Sept 11, 2009, the company is exercising its rights of mandatory conversion, and the early conversion shall be on Dec 27 at 5pm.

E&O may convert the ICSLS at any time after the second anniversary of the issuance with the sole condition being that its three-month volume weighted average price (VWAP) exceeds RM1 preceding the exercise.

The three-month VWAP as at Nov 17 was RM1.52, skewed upwards by the jump in price following Sime Darby’s acquisition.

The ICSLS have a conversion price of RM1 per E&O share. As they were issued at 65 sen, the remaining 35 sen will be debited from the company’s share premium account.

Based on E&O’s June 30 balance sheet, there were 908.90 million E&O ordinary shares issued. The conversion of the ICSLS will increase that figure by 24.2% to 1.129 billion shares, according to estimates by The Edge Financial Daily.

However, given that Sime Darby also holds 60 million ICSLS, the conversion will not materially dilute Sime Darby’s 30.04% stake in E&O, which will fall slightly to 29.49%.

Sime Darby should not be adversely affected as it had the foresight to acquire the 60 million ICSLS to ensure it would continue holding close to 30% of E&O. Otherwise, its stake would have been diluted to 24.18%, according to The Edge Financial Daily’s estimates.

An analyst estimated, based on “back of the envelope calculations” that resulting from the conversion, E&O’s book value per share will fall to RM1.06 from RM1.24 at the time of Sime Darby’s acquisition.

This is because, while the number of ordinary shares has increased by 24%, total equity will increase by only 4% to roughly RM1.2 billion due to RM71.61 million of the ICSLS located in non-current liabilities being transferred to shareholders funds, he said.

Another RM60.66 million in ICSLS is already parked under shareholders’ funds. The conversion of this tranche would not increase total shareholders’ funds.

On the other hand, earnings per share will remain mostly unaffected, only dipping to 4.77 sen from 4.8 sen for the quarter ended June 30, due to the high 8% coupon rate attached to the ICSLS.

Tham held about 65 million ICSLS as at July 29, but that figure should be much lower as he and the other vendors sold their ICSLS to Sime Darby.

When the ICSLS are converted at year-end, there will be over 160 million shares flooding the market excluding Sime Darby’s 60 million ICSLS. The resulting overhang could further depress E&O’s share price and exacerbate Sime Darby’s paper losses.

Furthermore, the flood of liquidity coupled with depressed market price could provoke another entity to acquire a significant stake in E&O.

The second largest shareholder with a 6.3% stake, ECM Libra had attempted, but failed, to nominate two directors to the board of E&O on Sept 30.

E&O ended down one sen to RM1.41 yesterday with 1.06 million shares traded. Year to date, the stock has risen by 6.82% from RM1.21.


This article appeared in The Edge Financial Daily, November 18, 2011.



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Sime Darby yet to appoint directors at E&O

KUALA LUMPUR: Sime Darby Bhd has yet to appoint representatives for the Eastern & Oriental Bhd (E&O) board since it bought a 30% equity stake in the property firm over a month ago.

The conglomerate’s president and CEO Datuk Mohd Bakke Salleh said it would do so “in due time”.

“We have to go through the process. Obviously we would need to table a paper to our nomination and remuneration committee and then to the board of directors. After that we would need to write in [to] E&O, notify them of our nominee directors, etc, etc,” he told the media after Sime Darby AGM yesterday.

Sime Darby became E&O’s single largest shareholder after it acquired the 30% stake for RM766 million cash or RM2.30 per share from E&O managing director Datuk Terry Tham, Tan Sri Wan Azmi Hamzah and GK Goh Holdings of Singapore.

Asked if Sime Darby intends to raise its stake in E&O, Bakke said this is not in the group’s agenda for the near future.

“At the moment we are happy to just work on the 30%. As for the future, that will depend on the kind of developments that will take place subsequent to this date,” he said.

Bakke also ruled out the possibility of Sime Darby looking for acquisition targets.

The shares’ purchase by Sime Darby prompted the Securities Commission (SC) to investigate the requirement for the conglomerate to extend a mandatory general offer (MGO) for the balance of the 70% stake in E&O.

Last month, the SC ruled that Sime Darby was not required to do so.

In a letter to the conglomerate, the SC said it had found no collusion between Sime Darby and E&O managing director regarding the deal.

When asked about possible collaborations with E&O, Bakke replied, “We’re working on it.”

RHB Research said last month that Sime Darby is likely in the longer term to participate in E&O’s Seri Tanjung Pinang 2 project in Penang, which has a gross development value of RM12 billion.

On the price of crude palm oil (CPO), Bakke said Sime Darby and other plantation companies are expecting the spot prices to remain currently at RM3,000 for the rest of the year.

For FY11 ended June 30, Sime Darby posted a net profit of RM3.84 billion, more than tripled RM854.8 million achieved previously. Revenue increased by nearly 29% to RM41.8 billion from RM32.5 billion. Revenue from the motor division contributed the most for FY11 at 35.4%, an increase from 31.1% for FY10.

However, revenue from the plantation and industrial sectors, second and third largest contributors respectively, decreased marginally. Contributions from plantations dropped from 25.6% to 24.5% and industrial from 33.4% to 31.5%.

Sime Darby’s share price has been on an uptrend from its six-month low on Sept 19 at RM7.70. Yesterday, the stock ended at RM8.86, four sen lower than its close on Wednesday.


This article appeared in The Edge Financial Daily, November 11, 2011.

No plan to up stake in E&O: Sime

Sime Darby Bhd has no plans to increase its 30 per cent stake in property developer Eastern & Oriental Bhd (E&O).

However, the company is looking forward to a potential collaboration with E&O, Sime Darby president and group chief executive Mohd Bakke Salleh told the media after the company's annual general meeting here today.

"At the moment we are happy to have the 30 per cent stake in E&O, and the future will depend on developments that will take place," he said.

On Nov 25, Sime Darby will announce its 2012 first quarter results and key performance index as well as its outlook for next year, Mohd Bakke said.

He said the company is targeting crude palm oil prices to stay at around RM3,000 per tonne until year-end, in line with the target prices of most plantation players and plantation research houses.

The company posted a higher pre-tax profit of RM5.45 billion for the financial year ended June 30, 2011 from RM2.82 billion recorded last year, while its revenue rose to RM41.86 billion compared to RM32.51 billion previously. -- Bernama

Boustead project called off

George Town: The Penang state government has cancelled a plan to allow Boustead Holdings Bhd (BHB) to reclaim up to 0.16 hectares of land off the Penang Bridge.

Boustead was initially given the rights as part of compensation package for agreeing to scale down a hotel development project in the state's heritage zone.

A statement from Chief Minister Lim Guan Eng's office, obtained by Business Times yesterday, noted the decision was made following public consultation and a legal notice sent by Boustead to a state assemblyman who was defending his constituents in the affected area.

"After much public consultation, the Penang State Government has taken cognisance of the views of the residents of Putra Marine, Gold Coast and Bay Garden and decided not to pursue the land reclamation at Bayan Bay to Boustead.

"To pursue the land reclamation deal with Boustead under the shadow of the legal notice of defamation sent by Boustead to (Pantai Jerejak) assemblyman Sim Tze Sin is wholly inappro-priate," Lim said in the statement.

"Boustead will still be required to comply with the World Heritage building height control of 18 metres within the heritage core zone of George Town.

"The form of compensation to be paid and whether it should be paid," Lim added, "is still subject to further negotiations with Boustead".

Boustead was in the midst of constructing a one-block 300-room Royale Bintang Hotel in George Town's heritage zone in 2009, when works were halted following reports the development could place George Town's heritage status in jeopardy.

Boustead is one of four developers who have been singled out for undertaking projects exceeding the height restriction in the heritage city's buffer and core zone.

The others are Asian Global Business (AGB) Sdn Bhd, Eastern & Oriental Sdn Bhd and the Low Yat Group.

All the firms had approval from the Penang Island Municipal Council for projects exceeding the 18m limit, well before George Town was placed on the World Heritage List in July 2008.

Last year, Boustead said it was seeking compensation from the Penang state government for agreeing to reduce the height of its proposed hotel. It is learnt that the company had sought RM20.8 million as compensation.

A Boustead spokesman, meanwhile, said the company was waiting for the state government to make a decision on the compensation.

"They have to pay us either in the form of land reclamation or cash reimbursement. They have to make a decision as to how to pay us, so we can recover the money we have spent," the Boustead official said.

The spokesman did not divulge the amount spent by Boustead on its hotel project, except to say that they had completed between 10 and 15 per cent of work so far.