Landmarks riding on Bintan transformation

Landmarks Bhd (May 20, RM1.56)
Initiate coverage at RM1.53 with buy call and target price of RM3.55: Landmarks is a deep value, under-researched property/hospitality stock with exposure to Bintan Island in Indonesia. Master developer Gallant Ventures is looking to improve infrastructure and amenities there with a shopping mall and better transport, possibly including an airport.

Tourist arrivals reached a record 430,000 in 2010 from diversified sources. In our view, the 338ha Treasure Bay land bought for S$100 (RM243) per sq m (against a recent valuation of S$238 per sq m) is more prime than Lagoi Bay because it is closer to the ferry terminal.

This will give its S$425 million Phase 1 of Treasure Bay Bintan (total value S$2.4 billion), which was recently launched by the Indonesian president, more pricing power. We expect sales to be robust.

Genting Bhd as a major shareholder (30.3% stake, average cost RM2.05 per share in 2007) will open doors for a gaming licence. PT Wisata Hiburia had earlier signed a zoning agreement that would allow several licensed activities at Treasure Bay Bintan, including gaming, but has not received approval at federal level.

The Indonesian government is looking at boosting its tourism industry and a gaming outlet in Bintan would help, as demonstrated by Resorts World Sentosa and Marina Bay Sands in Singapore.

We value Landmarks at RM3.55 (132% upside) based on one times FY11F book value, which is also reflective of our sum-of-parts (SOP) value. In our view, our SOP is conservative as it only values the raw land in Bintan and the Andaman Langkawi based on 2008 prices, and not potential development profit based on discounted cash flow.

Our SOP value is very sensitive to changes in land prices where an additional S$50 per sq m increase would raise our SOP to RM4.33 per share. — HwangDBS Vickers Research, May 20