Warrants Update: PR1MA project may boost Sentoria’s growth

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LITTLE-known Sentoria Group Bhd, which is involved in theme park and holiday resort development, is expected to see exciting earnings growth starting next year, thanks to contributions from an RM80 million contract to develop 1Malaysia People’s Housing (PR1MA) project in Kuantan, Pahang.

TA Securities analyst Thiam Chiann Wen expects Sentoria to achieve a net profit of RM75.9 million, or an earnings per share (EPS) of 17.2 sen, for the financial year ending Sept 30, 2015.

The increase in the EPS next year will be fuelled by progressive billings from the development of its Bukit Gambang Resort City, as well as contribution from the PR1MA project, according to Thiam.

The construction of its second and third resort cities in Morib, Selangor, and Kuching, Sarawak, which are expected to commence by year-end, will also boost its revenue in FY2015 through progressive billings, she says.

The anticipated strong profit growth could explain the share price rally so far this year. Sentoria’s share price soared about 73%, from 90 sen in mid-July to an all-time high of RM1.56 on Aug 25.

Thiam, one of the few analysts who track the stock, pegs a target price of RM1.70 to the company, based on nine times the forecast EPS of 17.2 sen.

“The target, EPS assumes, [is] that the construction of the two new resorts in Morib and Kuching will commence by the end of this year. Besides that, it has new PR1MA contracts and other property projects,” she says.

The positive sentiment has spilled over into the company’s warrant, Sentoria-WA, whose price almost tripled since mid-July to a record high of RM1.01 on Aug 27. It retreated to 92 sen on Sept 03 (Wednesday).

Should Sentoria deliver the expected stellar earnings, the company’s warrants, Sentoria-WA, could be a cheaper proxy for the growth.

At 92 sen, the derivative is trading at a 2.6% premium to the underlying share, given a 60 sen exercise price.

If Sentoria reaches TA’s RM1.70 target price,  Sentoria-WA should be worth RM1.10 or 8.7% more. But investors who think there is further upside for Sentoria, might want to consider Sentoria-WA which expires on April 15, 2019 — more than four years from now.

Apart from the Morib and Kuching resorts, Sentoria is expanding into the northern region. On Sept 02 (Tuesday), the company announced the leasing of 70 acres in Padang Matsirat, Langkawi, for 90 years, for another resort development.

Sentoria is also leasing 50 acres in Mukim Ulu Melaka, Langkawi, at RM5 per sq ft, for a healthcare tourism project — its first foray into the growing healthcare tourism segment.

This story first appeared in The Edge weekly edition of Sept 08-14, 2014.