EASTERN & Oriental Bhd’s (E&O) indirect wholly-owned subsidiary KCB Holdings Sdn Bhd (KCBH), has entered a joint venture (JV) agreement with Mitsui Fudosan (Asia) Malaysia Sdn Bhd to jointly develop luxury residences in Damansara Heights, Kuala Lumpur, and analysts have mixed opinions on this development.

This is the third JV between the two, following collaborations on The Mews and Conlay, two luxury apartments in Kuala Lumpur. This proposed JV is expected to be completed by the third quarter of 2020, with E&O holding a 51% stake, and Mitsui Fudosan holding the remaining 49%.

MIDF Research analyst Jessica Low Jze Tieng is neutral on the proposed JV, believing the outlook for high-end projects in Kuala Lumpur to be muted.

“Under the corporate exercise, E&O and Mitsui Fudosan will jointly develop a 3.9-acre plot along Jalan Teruntung in Damansara Heights. The land is proposed to be developed into three-storey villas/condominiums totaling 54 units with a total gross development value (GDV) of RM348 mil,” said Low, adding that the proposed JV is expected to generate cash flow for E&O and improve the group’s balance sheet.

Quah He Wei, analyst at AllianceDBS Research, notes that the land disposal price of RM88.3 mil, which translates into RM514 per sq ft, is relatively cheap due to the height restriction for the land.

“Nevertheless, this proposed JV represents a good opportunity for E&O to monetise its land value amid a challenging property market, particularly in the high-end segment. More importantly, Mitsui Fudosan is a strong partner which could help to ensure strong take-up for the proposed development,” said Quah.

The proposed JV is expected to attract Japanese purchasers and enhance the overall quality of the project.

MIDF maintains a neutral call on E&O due to a subdued earnings outlook, with an unchanged target price of 60 sen. Limited impact is forecast from this JV, according to Low, and no changes to the group’s earnings forecasts have been made.

AllianceDBS maintains a buy call with an unchanged target price of 90 sen, with the belief that the completion of reclamation works at the Seri Tanjung Pinang Phase 2A (STP 2A) land in Penang will help crystallise the deep value of E&O’s crown jewel, which bodes well for its long-term prospects.

“The potential entry of new partners to jointly develop STP 2A could be a strong rerating catalyst for the stock,” adds Quah.

At 4pm, E&O’s shares were traded unchanged at 62.5 sen, with 389,400 shares changing hands.

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