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Stocks In Focus MY (Eastern & Oriental, Quill Capita Trust, Supermax) – 20/01/15
Malaysia Daily Bulletin | 20 January 2015

E&O Buys London Office Building For RM309m

  • Eastern & Oriental’s (E&O) subsidiary, Eastern & Oriental Property (UK) (EOPUK), has entered into a property sale with GEMS Hammersmith (Luxembourg) SARL through EOPUK’s unit Hammersmith Properties, for the acquisition of Landmark House and Thames Tower in London for GBP57 million (RM308.9 million).
  • The company has earmarked EOPUK as the platform for it to build its real estate investment and development activities, with a primary focus on London. The proposed acquisition is thus consistent with its corporate strategy of strengthening its overseas growth engine and establishing the E&O brand internationally.
  • The firm noted that that the London residential market is outperforming the remainder of the UK market. As part of the central London market, properties in Hammersmith saw a 7 percent rise in 2Q14 due to strong demand. The firm added that it is doing significant enhancements to help it close the gap with neighbouring affluent boroughs Kensington and Chelsea.

Significance: By co-investing with reputable and like-minded partners wishing to have exposure in the resilient UK property market through EOPUK, the company hopes to optimize its capital outlay and seize more significant and sizeable opportunities overseas.

Maybank Research Foresee Low Rental Reversion For Quill

  • Maybank Investment Bank Research notes that Quill Capita Trust’s 4Q14 core net profit softened to RM8.5 million mainly as a result of higher costs, which consequently led to an FY14 net profit of RM34.2 million which was within expectations.
  • The drag in bottom line came largely from higher repair, maintenance and finance costs as well as lower interest income, though partly offset by higher rental revenue from positive rental reversions.
  • The research house forecasts the firm’s FY15 earnings per unit at 8.5 sen after factoring in the anticipated injection of MRCB’s Platinum Sentral in 1Q15, along with dilution from expected new unit placements and issuances in addition to positive rental reversions of selected assets.

Significance: Maybank Research maintained its ‘Hold’ call for the group with a target price of RM1.16 as it remains cautious on the firm’s near-term outlook as an oversupplied office rental market could make tenant retention challenging, thus resulting in positive but low rental reversions.

Sources Suggest Commencing Of Operations At Supermax’s New Plants

  • Supermax Corporation’s share price has taken a beating in recent days, mainly due to delays in the commissioning of Plants 10 and 11, which had been widely expected to start commercial production in 1Q15.
  • Industry sources suggest that these plants have indeed started operations although the company’s management has yet to confirm this. If proven true, the news would act as an important re-rating catalyst for the stock since it puts the company’s expansion plan back on track after repeated delays, according to AllianceDBS Research.
  • The research house had revised its forecast FY14, FY15 and FY16 earnings for the company upwards by 3 percent, 6 percent and 6 percent respectively after pushing back the expected date of commercial production for both plants from 4Q14 to 1Q15, which resulted in a 2 percent drop in its forecast FY14 sales in volume.

Significance: AllianceDBS Research believes Supermax’s current share price presents an attractive entry point and upgrades the stock to ‘Buy’ with a target price of RM2.30. It has lowered its average share price assumptions as the company is likely to pass on some of the benefits from the stronger US dollar to its customers.

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