SENTORIA Group Bhd has a number of property development projects in the pipeline. At its current price of RM1.45, it is valued at only 0.65 times revalued net asset value (RNAV) per share.

The company’s American call warrants (SNTORIA-WA), which closed at 72 sen last Thursday with a strike price of 60 sen, look particularly attractive due to the 9.8% discount to the mother share.

This means that the warrants are trading at a discount of more than 40% to what TA Securities says Sentoria’s RNAV should be. TA Securities has a “hold” call on the stock with a target price of RM1.70, or a 13% discount to the group’s RNAV per share of RM1.95.

It is noteworthy that the warrants, with a one-to-one conversion ratio, will only expire in April 2019. Furthermore, the company has only been paying a modest dividend of 2 sen a share of late, which reduces the opportunity cost of holding the warrants instead of the shares.

Sentoria’s share price may have picked up compared with a year ago, but that was mainly to price in the RM80 million development of Perumahan Rakyat 1Malaysia (PR1MA) on 79.18 acres in Kuantan, Pahang.

For investors, the upside lies in the development of the group’s recent acquisition in Langkawi and Melaka.

The 70-acre tract in Langkawi will be developed into a resort city and the 50-acre tract in Melaka into a medical village.

While Sentoria is still looking for strategic investors, the two tracts are expected to generate gross development value of over RM1.36 billion and begin contributing to profits in 2015.

Based on a discounted cash flow model, TA Securities estimates that the new project is worth about 4.5 sen per share or RM26.5 million over a 10-year period.

However, the market does not appear to have priced in the news as the share price has since fallen slightly from the announcement.

On a per earnings basis, the share price currently values Sentoria at 17.5 times earnings. However, once the earnings start to come in, the forward price-earnings ratio is expected to compress to 8.4 times.

In the meantime, the group also has about RM164 million in unbilled sales that, while not particularly large, provides some earnings visibility going ahead.

Significantly, Sentoria’s net gearing stands at 0.45 times, with only a small cash balance of RM7.3 million. Hence, it is estimated that the group may have to make a cash call going forward to fund some RM840 million for its theme park and resort developments.

This article first appeared in The Edge Malaysia Weekly, on November 3-9, 2014.

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