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This article first appeared in The Edge Financial Daily, on December 5, 2016.

 

Sentoria Group Bhd
(Dec 2, 78.5 sen)
Upgrade to hold with an unchanged target price of 84 sen:
Sentoria Group Bhd achieved record sales in the financial year ended Sept 30, 2016 (FY16), with new property sales leaping 144% to RM228.5 million.

Although the sales performance came in slightly below management’s sales target of RM250 million, it exceeded our projection of RM190 million. The stronger-than-expected sales were underpinned by encouraging sales performance from its two new resort city developments, Borneo Samariang Resort City (BSRC) in Kuching and Sentoria Morib Resort City (SMRC) in Morib.

In January this year, Sentoria rolled out landed properties within BSRC (gross development value [GDV]: RM84 million; 337 units). These terrace houses with an average selling price (ASP) of RM220,000 per unit and semi-detached units with an ASP of RM344,000 per unit were well received, registering a take-up rate of 81% in FY16.

Meanwhile, the maiden phase of SMRC, Riviera, with a GDV of RM101 million, was officially launched in February 2016. It features 156 units of resort villas with an indicative selling price starting from RM638,000 per unit. Response was encouraging with 116 units, or 74%, sold to date.

In addition, bread-and-butter townships in Kuantan also contributed steady sales in FY16. Specifically, Taman Bukit Rangin 3 (GDV: RM46 million; 300 units of single-storey terrace houses; ASP: RM150,000 per unit), which were only launched in September, has seen overwhelming response with 64% of the units sold within a month of its launch.

Overall, we believe the group’s ability to deliver the right products at the right prices contributed to the strong take-up.

We see clearer skies ahead for Sentoria as earnings visibility has improved. Supported by strong sales performance in FY16, the group’s latest unbilled sales doubled to RM175 million from RM82 million a year ago.

The solid unbilled sales represent 1.3 times the group’s FY16 property revenue. Meanwhile, the group has clinched RM137.4 million worth of design and build contracts in FY16 and unrecognised revenue from these contracts stood at RM118.9 million as at September 2016.

Although the sales targets and opening timelines of the new theme parks are largely within our expectations, we are upbeat on the group’s strategies to drive future earnings. Also, we expect management’s track record and experience in building and managing theme parks should help clear investors’ concerns over its execution capability.

We also anticipate the opening of the Langkawi Nature Park in 2016 to serve as a platform to build Sentoria’s brand name in Langkawi for the benefit of its two future resort city developments.

Our FY17 and FY18 earnings estimates are adjusted by 4% lower and 7% higher respectively, after incorporating the FY16 results and performing some housekeeping to our model. We note that our FY17 sales assumption is conservative at RM300 million, below management’s target of RM350 million.

Coming from a higher base in FY16, we project FY19 earnings per share (EPS) to grow 6.5% year-on-year, underpinned by the projected RM1 billion in sales and contributions from the Kuching and Morib water parks.

We value Sentoria at 84 sen per share, based on an unchanged eight times calendar year 2017 EPS. We upgrade Sentoria to “hold” from “sell” previously as we see improved earnings visibility for the group driven by healthy unbilled sales and steady recurring income when its two new water parks commence operations by FY18 and FY19 respectively. — TA Securities Research, Dec 2

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