E&O expects stronger quarters ahead after reversing losses in 3Q

KUALA LUMPUR (Feb 24): Having reversed losses in the third quarter, Eastern & Oriental Bhd (E&O) expects stronger earnings in the following quarters, supported by recognition of sales from new property launches in Penang and better contribution from its hospitality segment as the economy begins to recover from the Covid-19 pandemic.

Net profit for the third quarter ended Dec 31, 2021 (3QFY22) was more than nine-times higher to RM7.83 million from RM832,000 a year ago.

In a virtual briefing of E&O'S latest results, managing director Kok Tuck Cheong said that the two towers of serviced apartments located in Penang have been well-received with a take-up rate of 80% for block A of the project since its soft launch in January 2022.

The two-tower project, dubbed The Meg, has a gross development value of RM647 million, and the take-up rate (for the one tower) would translate into about RM260 million in new property sales, said Kok.

As for its hospitality segment, he expects food and beverage to drive revenue for the segment going forward, on pent-up demand for wedding events following relaxed restrictions.

Occupancy and room rates are also projected to improve when international travel becomes easier.

On its ability to end the year in the black, Kok said there is a “high chance” of E&O staging a turnaround in the current financial year ending March 31, 2022 (FY22).

The group’s unbilled sales of RM227.6 million are expected to drive earnings.

Moving forward into FY23, Kok expects property sales to be in the range of RM600 million to RM800 million, to be driven by the sales of its property projects, namely The Meg, The Peak (a low-rise residential development in Damansara Heights), as well The Conlay (a high-rise residential project located in Kuala Lumpur).

Speaking on the property market outlook, Kok said the projects that are geared towards domestic consumers appeared to be “buoyant” at this point of time.

“The purchases [of property] are being supported by the bankers in terms of financing for their purchase.

“In terms of products that are geared towards foreign investment, unfortunately, due to the fact that the international borders are still closed, it is a bit slow. Nevertheless, I think most property developers have embarked on the digital platform to sell their properties abroad. And increasingly, a lot of the investors are actually beginning to sign the SPA [sale and purchase agreement] abroad with the appointed lawyers of the developers,” he said, adding that the developer had also engaged lawyers’ representatives overseas to assist with the signing of the documents.

For the cumulative nine-months ended Dec 31, 2021 (9MFY22), E&O recorded a net loss of RM15.26 million as opposed to a net profit of RM1.95 million a year ago as revenue dropped 49.38% to RM83.79 million from RM165.53 million.

“The decrease in revenue was mainly attributed to the property segment which registered a decrease of RM85 million mainly due to a sale of land parcel of RM55 million in the previous financial period and lower sales of completed properties during the current financial period,” its filing with Bursa Malaysia showed on Wednesday (Feb 23).

It added that the net loss in the 9MFY22 was adversely affected by the drop in revenue and the unrealised foreign exchange loss of RM9.4 million as compared to the unrealised foreign exchange gain of RM18.3 million in the previous financial period.

“However, this was mitigated by the recognition of gain on lease modification of RM9.3 million and waiver of rental of RM11.8 million in the hospitality segment,” it added.

Despite the improvement in 3Q profit, revenue for the same period, however, fell 35.99% to RM23.38 million from RM36.52 million a year before.

On a quarter-on-quarter (q-o-q) basis, E&O reversed three straight quarters of losses, with the immediate preceding quarter (2Q) recording a net loss of RM13.99 million. Revenue however, fell 31% q-o-q from RM33.88 million.

E&O has been loss making for the past two financial years, in the red to the tune of RM71.74 million in FY21, and RM195.94 million in FY20, owing to disruptions caused by various movement control orders.

Shares in E&O were down 0.5 sen or 0.8% at 4pm to 59.5 sen.

Edited by Pauline Ng

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