Gallant Venture (KimEng)

BUY

Bintan tourism set to enter new phase

Event:

 We recently concluded a roadshow for Gallant Venture. The group’s plans to bring tourism in Bintan to a new phase were well‐received by the fund managers. In particular, they were delighted when management said it aims to cut travelling time between Singapore and Bintan to just 30 minutes, from the current 50 minutes, by moving its ferry services to the upcoming International Cruise Terminal at Marina South and by purchasing high‐speed ferries. Maintain BUY.

Our View:

 Management reported that tourism in Bintan is booming, citing record profits registered last year by the island’s resort operators and the construction of new wings to accommodate rising tourist arrivals. We also understand that both the residential development at Pantai Indah and Alila’s project are doing very well, selling at about $200‐250 psf. In addition, the utilities and industrial park businesses are returning to the pre‐crisis levels.

 A question was raised on Gallant’s two acquisitions. One was resource mining company PT Silo in Sebuku Island, Indonesia, and the other, a high‐end development in Lao Xi Men, Shanghai. Management said these were “bargain buys” and the opportunities came about during the global financial crisis. They were meant to plug the earnings gap in the interim before the initial phases of Lagoi Bay and Treasure Bay are completed.

 The group’s earnings for this year and next will be underscored by the recognition of land sales of $55m. PT Silo will start to contribute earnings once the convertible bond is converted to 29% equity stake, expected to be within this year. The mining subsidiary made US$20m last year. The Shanghai project is slated for completion in two phases over 2013‐14, for which an estimated $300m in net profit will be recognised. From 2014 onwards, we expect a jump in Gallant’s recurring income as a result of increased utilities demand from Lagoi Bay and Treasure Bay.

Action & Recommendation:

We reiterate our BUY recommendation and target price of $0.75, based on SOTP valuation.