E&O Berhad - Mitsui Entering The Mews

E&O and Mitsui, Japan’s largest property company, are entering into a 51:49 JV to develop The Mews in the KL city centre. The equity contribution of RM41.3m from Mitsui valued the 5,221 sqm land at RM1,500 psf, which is deemed reasonable. We are positive on the JV, as the closer collaboration with Mitsui will make the marketing of the project easy. E&O will be able to tap on Mitsui’s strong high net worth clientele.

The JV. Both E&O and Mitsui will now jointly develop The Mews, which is a RM400m GDV project located at Jalan Yap Kwan Seng. The equity contribution of RM41.3m from Mitsui valued the land at RM1,500 psf, which is reasonable and not far from valuer’s valuation of RM1,513 psf. The Mews comprises 256 units of serviced apartments with unit size ranging 922 sqf to 2,623 sqf, and it is expected to be launched in 2Q. Indicative pricing is about RM1,500 psf, which is comparable to some of the ongoing projects within the KLCC enclave.

Mitsui to make marketing easy. We are positive on the JV, as Mitsui will make marketing easier and help accelerate the take-up of The Mews. The JV signifies the potential long-term partnership that E&O could establish with Mitsui as this marks a step forward from the earlier marketing collaboration that was signed in 2011. Since the first collaboration, Japanese buyers have now become the second largest segment in E&O’s foreign buyers’ profile. E&O has been conducting marketing roadshow together with Mitsui in overseas. Tapping on Mitsui’s current clientele of 170k, E&O at the same time is able to cross sell its other projects such as Quayside Andaman as well as the upcoming Integrated Wellness Capital.

Forecasts. No change in our FY13 core net profit forecast. E&O is expected to realise a one-off gain of RM3.45m arising from the JV.

Maintain Trading Buy. Valuations are largely unchanged after we adjust our RNAV estimate to reflect the JV and the disposal gain. The key catalyst for the stock is still the crystalisation of STP 2, which is expected to happen after the general election. We keep our fair value at RM2.08, based on 40% discount to RNAV.

Source: RHB