Saturday, April 09, 2011
Landmarks Is About To Take Off
If you were trading MAA, you'd better be having balls of steel. The oil and gas counters have been hogging the limelight and looks to be needing a pause. Certain developments over the past week made me look at Landmark as being very ripe for a massive re-rating upwards. Some background first.
The transformation - Landmarks Berhad (LB) undertook a massive transformation in 2006‐2008, selling off non‐core, non‐strategic and matured businesses as well as entities in which it had no management control. The disposals of these assets, including retail malls, hotels, healthcare service providers and independent power producers, raised total cash proceeds of RM876m, net of loan repayments.
LB has only 3 major assets. Of its original assets, only The Andaman Langkawi resort hotel (net book value: RM117m, revalued in 2008) and MSL Properties Sdn Bhd (20%+1 share, carrying value: RM43m, township developer in Wangsa Maju) were retained after the disposals. The third and biggest asset is its 100% stake in Bintan Treasure Bay Pte Ltd (BTB), the developer of Treasure Bay Bintan, which it bought for RM771m in 3 tranches between May 2007 and May 2008. The acquisition was in line with its vision to be a leading player in the lifestyle sector focusing on resorts, hospitality and wellness in South East Asia.
Table 1: Disposals & acquisitions under transformation programme (RMm)
A. Disposals 915
Sep‐05 50% MSL Properties Sdn Bhd (property developer) 78
Feb‐06 60% Qualitas Healthcare Corporation 10
Sep‐06 70% Mediscreen Sdn Bhd 4
Apr‐07 Sungei Wang Plaza retail mall 285
Sep‐07 26% Shangri‐la Hotels (Malaysia) Berhad 287
Nov‐07 Datai Langkawi Hotel 72
May‐08 20% Teknologi Tenaga Perlis Consortium (independent power producer) 179
B. Acquisitions 771
May‐07 64.5% of Bintan Treasure Bay Pte Ltd 353
Nov‐07 9.5% of Bintan Treasure Bay Pte Ltd 54
May‐08 26% of Bintan Treasure Bay Pte Ltd 365
Crown jewel is its 338‐ha land in Bintan Island. LB’s crown jewel is the 338‐ha land in Bintan Island strategically located next to Bintan Bandar Telani Ferry Terminal, the main gateway to Bintan from Singapore (45 minutes by ferry). The land will be developed into an integrated health, leisure, cultural, residential and commercial real estate paradise, and supported by world‐class infrastructure. BTB signed an agreement with PT Wisata Hiburia (an Indonesian entity that has been granted a Decree for Permanent License of International Exclusive Integrated Tourism by Regent of Kabupaten Bintan) on 24 Jan 2008 for the zoning of Treasure Bay Bintan as an Exclusive Integrated Tourism Zone for conducting certain licensed activities ‐ medical tourism; multimedia & information technology hosting; and games & entertainment (including gaming).
The other side of the coin is Gallant Ventures, a company listed on SGX. Gallant Ventures Ltd, the developer of the 1300‐ha Lagoi Bay Development in Bintan, sold commercial, resort and residential land plots at S$312, S$119 and S$300 psm respectively. The preparation of the master plan is still in progress, LB hopes to launch Bintan Treasure Bay development in early 2011.
The 338‐ha land in Bintan Island, held by wholly‐owned Bintan Treasure Bay Pte Ltd (BTB), was last revalued at S$242 psm in 2008 by an independent valuer, 144% higher than LB’s entry cost of S$99 psm. LB trades at a massive 70% discount to book NTA, which is at the high end of discounts amongst property companies.
Gallant Ventures Ltd, the developer of 1300‐ha Lagoi Bay Development in Bintan, saw its shares rising enormously last week. LB, on the other hand, currently trades at price/NTA of 0.45x, and book NTA of RM3.54. Shares of Gallant Ventures, which develops industrial parks and resorts in Indonesia's Bintan and Batam, rose as much as 16.5 percent a couple of days ago after DBS Vickers resumed its coverage on the stock with a buy call and S$0.88 target price. At midday, Gallant Venture shares were up 14.1 percent at S$0.485 on a volume of nearly 100 million shares, around 9 times the average volume in the last 30 days. All things being equal, LB should be marking time to get to RM2.00 easily. Its not just a rule of thumb, but rather, they are like Siamese twins. Just look at the correlation of the two share prices over the past 2 years - uncanny. They track each other almost to over 90%.
The DBS research caused a huge interest in Gallant Ventures, gaping up considerably. Since its DBS, I do expect a similar hefty report on LB to be coming out very very soon. Surprising not many investors have spotted this. The shares moved up nicely on Friday indicating that I am not the only one spotting this anomaly. Ways to go. (Landmarks white line, Gallant Ventures orange line).
Let's look at the DBS research piece, issued on 6 April 2011 as what applies to Gallant Ventures will only mean the same (and more) for LM. DBS research target price is S$0.88 compared to its price when the report was issued at S$0.43. The shares rose and rose to close at S$0.495 on 45m shares traded yesterday.
DBS Research - Prime Lagoi Bay development to take flight. Gallant Venture (“GV”), a master developer of industrial parks and resorts in Bintan and Batam, owns over 18,000 ha undeveloped landbank on Bintan island held at its historical cost of S$0.78 – S$10.95psm. Development of its prime site - Lagoi Bay, a 1,505-ha sea-facing site is taking shape, with major infrastructure works and construction of the central shopping mall is in advanced stages. The group booked in S$33m sales with over 70% margins as it transferred the first land packets to investors. We believe the development of Lagoi Bay as an integrated resort will spur much investors’ interest and land sales in the future.
Re-initiate BUY with SOTP-based TP of S$0.88. Gallant Venture will unlock substantial value from more land sales sparked by the Lagoi Bay development, where the group has and is projected to sell its plots at an average of cS$120psm, against expected development cost of cS$35 psm and substantial windfall gains from its opportunistic investment projects. Our SOTP-based TP of S$0.88 offers over than 100% upside.
Why it did not take off previously? While Bintan offers one of the nicest beaches in South East Asia, the longer term vision of the island turning into a major regional resort enclave off the shores of Singapore did not take off as expected as (i) the haphazard development of existing resorts in our view - with individual developers and operators scattered unevenly across the island created a “bubble effect” amongst tourists who rarely venture out of the respective resorts, (ii) accessibility between the resorts is both limited and deliberately stunted as a lack of centralised public attractions such as Patong Beach in Phuket for tourists to explore and mingle and a lack of vibrancy and attractiveness of the island as visitors stay and play only within the boundaries of their resorts, (iii) the lack of alternative transportation, where the only entry into Bintan is through Ferry has limited the growth of visitor arrivals into the island.
Upcoming Lagoi Bay Development to inject vibrancy and life into Bintan – a key to complete Bintan’s puzzle. In order to fully realise Bintan’s potential, Gallant Venture plans to integrate the current self-sustaining resorts with a masterplanned village centre located at the heart of Lagoi Bay to draw in the crowds and add further variety to the current attractions on the island. Gallant Venture’s vision is for the Beach Village (“LBV”) to draw the disparate pieces of Bintan’s disorganised development together and transform them into a vibrant and self-sustaining community.
Unlocking value process starts. Development of its prime site - Lagoi Bay, a 1,505-ha sea-facing site is taking shape, with major infrastructure works and construction of the central shopping mall in advanced stages. The group booked in S$33m sales at an average price of S$100-150 psm, enabled the group to record over 70% margins as it transferred the first land packets to investors to start development of the various land plots into resorts/resort homes. We believe the development of Lagoi Bay as an integrated resort will spur much investors interests and land sales in the future.
Treasure Bay – Landmarks’ S$425m project next to Gallant’s Lagoi Bay site expected to raise international visibility for BIntan. Landmarks Berhad recently launched phase 1 of its Treasure Bay resort island site and is pumping more than S$425m into development of a resort covering over 222 acres. Featuring a luxury resort and serviced villas, a dedicated multi model transportation terminal, world class marina and lagoon, as well as amenities for entertainment, retail, night-life and F&B, the project is expected to complete in 2015. The launch of a big-name project such as Treasure Bay will definitely raise the profile of Bintan Island and a big boost for Gallant Venture. Developers and potential investors alike will watch Treasure Bay’s development closely.
Going forward, looking to ease mode of transport into Bintan. Gallant Venture proposal of moving its current embarkation point from Tanah Merah Ferry Terminal (TMFT) to the upcoming Marina South Ferry Terminal downtown when completed by end 2011 is in the works as the the shift will be positive for Bintan’s image as a travel destination and weekendplayground for Singaporeans, as it will cut the ferry journey down to c30-45min and eliminate the need for tourists to travel to the relatively obscure Tanah Merah Ferry Terminal (next to Changi Airport, in the Eastern part of Singapore).
In addition, a proposed new airport is in the works with President Susilo Bambang Yudhoyono granting permission for a new airport (catering from single- aisled planes like Boeing 737s and Airbus 320s) to be built at the Lobam industrial area, 35min away from Bintan Resorts. We understand that Gallant Venture will be involved and is currently looking for partners to embark on this plan to build an airport. This new embarkation point will be a key catalyst to the further growth in the tourism sector of Bintan in the longer term.
LB is a cheaper proxy to rising land prices in Bintan, the gateway to the Riau Archipelago. The share price is even below Genting Berhad’s book cost of RM2.37 per share. Landmarks is trading at a hefty discount of more than 70% to our estimated RNAV of RM4.81. It also boasts RM130m net cash, which works out to RM0.27/share or 20% of the current share price.
This may have been missed by many investors:
PULAU BINTAN (Indonesia) Feb 26 (Bernama) -- Indonesian President, Susilo Bambang Yudhoyono, today launched Landmarks Bhd''s water city resort in Teluk Sebung, Pulau Bintan, one of the islands in the Riau archipelago. The integrated project includes a hotel, marine terminal, marine aircraft terminal, marina, shops, amusement parks and other facilities. Susilo named the integrated tourist resort "Pesona Lagoi Bintang" (Lagoi Bintang Charm).
In his speech, the president, who was accompanied by his wife, Ibu Ani Yudhoyono, said he hoped Pulau Bintan would be developed to become a well-known integrated tourist centre in the region like Singapore''s.
"We do not wish to see only Singapore becomes developed, we want to grow together. Pulau Bintan has more to offer compare to Singapore in terms of nature," he said.
On the Hollywood movie, ''Eat, Pray, Love'', he said ideally, the film should be shot in Bintan.
"They don''t have to go to Italy to eat, India to pray and Bali to fall in love. Bintan can offer them all," he said.
Susilo also questioned Singapore''s promotion ''Visit Singapore Then Bintan. Bintan can become well-known and promote itself like ''Visit Bintan Then Singapore''.
The water city resort, which covers 338 hectares, is called ''Treasure Bay''. It will be developed by Landmarks unit, Bintan Treasure Bay Pte Ltd, over 20 years.
Its chief operating officer, Paul Leong, said the first phase of the project, which would include the building of international standard marine, multi-modal terminal and entertainment facilities and restaurant, would cost S$425 million.
a) One is the launch of the group’s core asset, the 835-acre Treasure Bay Bintan (TBB)development. When things are moving, like they have been for the past 2 months, the realisation will somehow dawn upon investors that the projects are starting and no longer just a pipe dream - expect both counters' huge discounts to RNAV will narrow dramatically.
b) Two, the announcement of gaming operations at the TBB resort, which would be a huge catalyst for the stock. Still an if, but a very big if. Even if it does not eventuate, the redevelopment of Bintan will still yield sufficient profits for the big early players. Singaporeans just love land near and far, they need new properties to buy, I guess.
c) The positive re-rating of its Siamese twin, Gallant Ventures.
Assuming a 50% discount to its RNAV, the stock could trade at RM2.41. Landmarks could also ride on the 40% share price rally of Gallant in recent weeks.
The mixed development project which has an estimated GDV of S$1.8bn (RM4.3bn) is expected to comprise of resorts, condominiums and villas. Plans call for its development as the Water Resort City of Bintan with canals, waterways and lakes. It will target the middle- to upper-segment of tourists and investors, particularly Indonesians and Singaporeans. Tourist arrivals in Bintan reached 410,000 in 2009 and are projected to touch 440,000 in 2010. Most of the tourists come from Singapore.
No confirmation of gaming business yet? Landmarks did not confirm whether there are plans to set up a gaming establishment there. In Jan 08, the company announced the signing of a zoning agreement between BTB and PT Wisata Hiburia (PTWH).
What is the zoning about? The zoning involved the designation of Treasure Bay Bintan as an exclusive integrated tourism zone (EITZ) for conducting certain licensed activities i) medical tourism, ii) multimedia and information technology hosting, and iii) games and entertainment, including gaming. PTWH has been granted a surat izin tetap usaha wisata internasional terpadu eksklusif (decree for permanent licence of international exclusive integrated tourism) by the Bupati of Kabupaten Kepulauan Riau which allows PTWH to zone land in Bintan Island where the above-mentioned activities can be conducted. Of course there are undoubtedly risks associated with the licence to operate a gaming establishment on Bintan as gaming is still prohibited in Indonesia. Even without the gaming facility, Bintan should be sustainable for the landed projects they have in mind.
Due to the 2008 global financial crisis, the Treasure Bay Bintan project was put on hold. However, the company recently indicated that it is resuming the project and is finalising a master plan for the project.
Lastly, at present price up to RM1.80, getting into Landmarks is already lower than Genting's entry price. There are so many levels of comfort here: cash is 20% of share price; deep 70% discount to RNAV; following the immense success of Sentosa and the huge potential of Iskandar, it would be very silly for Yudhoyono not to work to have Indonesia getting a proper representation using Bintan as part of the "triangle of too-much-money-for-redevelopment, the triangle of the new Monaco/Macau, the triangle of dreams and visions" ... which is why I believe Indonesia will make Bintan IR a special zone to allow casinos there eventually in order to compete properly within the triangle.
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