GALLANT VENTURE: Huge land bank in Bintan may be re-rating factor

This article was recently published on Ernest Lim's (left) blog and is reproduced with permission. Subsequent to that, Gallant Venture announced a 1Q loss of S$2.9 million versus S$3.3 million loss in 1Q2013.


GALLANT VENTURE is a commercial developer, integrated master planner and manager for industrial parks and resorts in Batam and Bintan.

Based on its annual report 2013, it has the backing of key shareholders such as Salim Group (74.6%) and Sembcorp Industries (12.0%).

As of 30 Apr 14 closing price at $0.300, Gallant’s market cap is S$1.45b. Notwithstanding its large market capitalization, there is no analyst coverage of the stock.

There are some key factors which caused me to take a closer look at Gallant.

1. Huge land bank in Bintan totaling 18,000 hectares

Gallant Venture acts as master planner and developer for its development projects, including industrial, commercial, residential and resort projects, on the Group’s land bank in Bintan of 18,000 hectares. Above: The new Pantai Indah luxury villa in Lagoi Bay. 
Photo: Annual reportAccording to Gallant’s website, the land was acquired at a very attractive rate of $3 psm. With the recent interest coming back to undervalued property stocks, Gallant may be worth a closer look.

Although, I am not a property expert in assessing the worth of the land in Bintan, I would guess that it is worth more than before. Gallant's net asset value per share is approximately around $0.415.

2. Property development business to gain traction

Gallant started to recognize land sales of S$55.5 million contributing net margin of approximately S$34.7 million in FY13. (FY13 net profit was S$47.5m).

According to Gallant, three out of the five new hotels already under construction are scheduled to open in 2014. Another three hotels broke ground in 2013. As these new properties come online, Gallant expects incremental revenues from their complementary lines of business, such as utilities, ferries and dormitory rentals.

3. Automotive sector - full year contribution in FY14

As of Jul 2013, Gallant has increased its stake in PT Indomobil Sukses Internasional Tbk (“IMAS”) to 71.49%. In 2013, IMAS’ revenues exceeded S$2.45 billion and generated after-tax profit of almost S$79 million, contributing S$25.8 million profit to Gallant.

Indonesia’s automotive sector has been on an uptrend over the last five years. Total annual vehicle sales have doubled in the last five years from approximately 600,000 units to approximately 1.2 million units in 2013.

On the back of Indonesia’s increasing consumption power, management remains positive on the automotive sector.

4. Chart – consolidation mode

Gallant seems to be in a consolidation mode after reaching eight month high at $0.360 on 19 Feb 2014. Based on my personal observation, there seems to be some accumulation at current levels.

Strong support: $0.290 – 0.300 / 0.280

Resistance: $0.315 / 0.335 / 0.350

Risks

1. May stay undervalued for some time if there is no analyst / media coverage.

It is not news that Gallant’s land bank is (very likely) undervalued in their books. However, what has changed is that they have started to recognize resorts land sales and have secured land sales contracts stretching till 2015. Thus, this seems to be a good step forward to monetize their land bank.

Having said the above, if there is no analyst or media coverage, it may still take time for the market to recognize the initiatives that Gallant is doing.

2. Land sales - lumpy in nature.

As their land sales are lumpy in nature, quarterly results may not be a good gauge of company performance

In addition to the above, there are likely to be other risks involved. As this is just a short introduction on Gallant, please visit the company website for more information and its Powerpoint presentation materials.