· An affordable housing developer with a ‘twist’. Sentoria Group Bhd (SNTORIA) is an affordable housing developer based in Pahang, which started operations since 2000. Over the years, SNTORIA has completed and sold 5,442 units of properties in that region and also built and operates a resort in Gambang namely Bukit Gambang Resort City (BGRC). BGRC which consists of Water Park and Safari Park is located right in the heart of Gambang and just 30 minutes’ drive away from Kuantan. Given the affordability of its properties priced below RM200.0k coupled with the attraction of the theme parks, most of its projects in Kuantan and Gambang are taken up by the locals.

· Diversifying geographically. While SNTORIA is well known for its integrated resprt development in Gambang and affordable housing in Kuantan, the group is currently looking to expand to Selangor, Kedah, and Sarawak to geographically diversify from its concentration risk in Kuantan & Gambang. To recap, SNTORIA managed to replenish its remaining landbank by 1.75x from 615 acres to 1,694 acres through a series of acquisitions and joint-ventures over the years. Currently, SNTORIA’s remaining landbanks are located in Kuantan – Gambang (14.3%), Selangor – Pantai Morib (36.2%), Sarawak – Samariang (20.7%), Kedah – Langkawi (28.9%) with a total GDV of RM9.0b.

· Replicating its success in BGRC? Their unbilled sales currently stand at RM117.6m, providing at least 1 year visibility. However, we believe that SNTORIA will be very busy for the next 2-3 years as they have already planned RM1.8b worth of project launches across Malaysia over 2015-2017, with a similar business model similar to BGRC where most of its developments outside Kuantan will be integrated with a Water Park. As we understand, management plans to kick off a project in Pantai Morib with a total GDV of RM500.0m. Under current market conditions, we believe that its hotel suites and service apartments will sell well as it is priced below RM300.0k per unit with sale and lease back agreement similar to BGRC, while its 2-storey resort town villas sales may be slower as it’s priced at a higher range of RM600.0k and above.

· Phenomenal growth ahead. Assuming RM500.0m of launches per year coupled with take-up rate assumptions of 70.0% stretching from 2015-2017, we are projecting FY15/16/17E net profit of RM31.4m/RM48.5m/RM70.3m with growths of 7.9%/54.5%/44.9%, respectively.

· Manageable balance sheet. SNTORIA’s balance sheet remains at a manageable level with net gearing of 0.40x as of 1Q15, but we expect it to spike to 0.53x in FY15 as they have capex spending of RM120.0m for its Water Park over three years till 2017. We are still comfortable with that as we expect it to come down to 0.50x/0.43x in FY16/17E, with a constant DPS of 2.0 sen.

· Not Rated. Based on its estimated total GDV of RM9.0b, we derive a conservative FD RNAV of RM2.46. For our small-mid-cap developers, we are currently applying 30.0-70.0% RNAV discount while the segment’s average is 55.0%. Given that their net gearing is relatively higher than its peers, we are assuming a discount range of 50.0-60.0% which would derive a FV of RM0.98-RM1.23, or RM1.11 on average. Currently, it is trading at FY15-16E PER of 15.0-9.7x which is at a 51.5- 26.0% premium to the mid-cap average of 9.9-7.7x, which we believe is fairly valued for now, given current challenges in the property sector. However, we will be monitoring the stock for its growth potential provided that there are no delays in the execution and launches on its planned projects.

Source: Kenanga Research - 14 May 2015