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TA SecuritiesA Member of the TA Group

I P O

Thursday, 09 Feb 2012

FBM KLCI: 1,553.18

Sector: Property

MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048

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Sentoria Group Berhad

Fair Value: RM 0.80 Competition Bites! Main Market Listing

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Not rated

TA Research Team Coverage

+603-2072-1277 ext:1664

[email protected]

www.taonline.com.my

Background

Sentoria Group Berhad (Sentoria) is principally involved intwo complementary

core business divisions, namely property development and leisure and

hospitality. Its property development business division specialises in township

developments and resort city developments, while the leisure and hospitality

business division owns / leases, manages and operates the hotels / resorts and

theme park facilities and attractions.

IPO Statistic

Sentoria's IPO entails a public issue of 60mn new ordinary shares, and an offer

for sale of 40mn promoters' shares.

Public issue:

• 20mn for public balloting; at 85sen/share;

• 10mn for eligible directors, employees and business associates of the

group at the IPO price of 85sen/share;

• 30mn shares for private placement at a price of 87sen/share.

Offer for sale:

• 40mn for MITI investors, priced at 87sen/share.

Main Key Concerns

1. The sustainability of Bukit Gambang Resort City’s (BGRC)

attractiveness;

2. Established property developer in Pahang, but it is still relatively

small in Malaysia in terms of property sales; and

3. Unclear near-term earnings visibility.

Valuation

We benchmark Sentoria to small-cap property stocks listed on the main

market of Bursa Malaysia. We value Sentoria at 6.0x CY12 EPS and derive a fair

value of RM0.80. We believe the discount of 0.4x multiple to average small cap

PER is fair given 1) its smaller market capitalization of less than RM400mn; 2)

rising competition in the theme park industry; and 3) unclear earnings

visibility.

Earnings Summary (RM mn)

FYE Sep 30 2009 2010 2011* 2012F 2013F

Revenue 91.4 123.2 172.4 209.1 242.7

Gross Profit 25.4 38.6 61.3 75.3 87.4

EBITDA 21.4 27.8 46.6 63.0 74.4

Interest cost (0.4) (2.1) (2.4) (2.1) (2.8)

PBT 19.2 22.6 40.3 56.7 66.3

Tax (5.8) (3.3) 5.6 (5.7) (6.6)

Minority interests (0.0) (0.0) (0.0) (0.0) (0.1)

Net Profit 13.3 19.3 45.8 51.0 59.6

EPS# (sen) 3.3 4.8 11.5 12.8 14.9

PER (X) @ IPO price 25.5 17.7 7.4 6.7 5.7

DPS (sen) - - - 2.6 3.0

Dividend Yield (%) - - - 3.0 3.5

Source: TA Securities

Share Information

Listing Main Market

Enlarged Share Capital (mn) 400.00

Market Cap @ RM0.85 (RM mn) 340.00

Par Value (RM) 0.20

Issue price (RM) 0.85

Oversubscription rate N/A

Estimated free float (%) 25

Tentative listing date

Tentative Listing Dates

Event Tentative Date

Opening of the IPO

Closing of the IPO

Balloting of Applications 14-Feb-12

Allotment of Shares 15-Feb-12

Listing

Ratio & Analysis

NTA per share (post IPO) (sen) 39.0

Price to NTA (x) 2.2

Proforma ROE (%) 28.7

Proforma ROA (%) 28.3

Proforma Gearing (x) Net cash

Utilisation of Proceeds RM(mn) %

Repayment of bank borrowing 11.2 21.7

Purchase of property, plant and

equipment9.0 17.4

Working capital 27.7 53.7

Estimated listing expenses 3.7 7.2

TOTAL 51.6 100.0

23-Feb-12

23-Feb-12

31-Jan-12

10-Feb-12

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Background

Established in 1998, Sentoria is principally involved in two complementary

core businesses, namely property development and leisure and hospitality. Its

property development business division specialises in township development

and resort city development, while the leisure and hospitality business

division owns / leases, manages and operates the hotels / resorts and theme

park facilities and attractions(See Appendix A).

Figure 1: Corporate Structure

Source: Prospectus, TA Securities

IPO Statistic

Sentoria’s IPO entails a public issue of 60mn new ordinary shares, and an offer

for sale of 40mn promoters' shares – see Figure 2. Of the 60mn shares under

public issue: 1) 20mn are allocated for public balloting; 2) 10mn for eligible

directors, employees and business associates of the group at the IPO price of

85sen/share, and; 3) the balance of 30mn shares will be allocated for private

placement at a price of 87sen/share. The 40mn promoters' shares will be

allocated for bumiputera investors approved by the Ministry of International

Trade and Industry, and priced at 87sen/share.

Figure 2: IPO Structure


Utilisation of proceeds

The estimated gross proceeds of RM51.6mn raised are expected to be utilized

for 1) working capital; 2) repayment of bank borrowing; 3) purchase of

property, plant and equipment.

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Table 1: Utilisation of proceeds

Description

Estimated timeframe for

utilisation upon Proposed

Listing

Amount

(RM'000)

% of Total

Gross

Proceeds

Repayment of bank

borrowingWithin 6 months 11,200 21.7

Purchase of property, plant

and equipmentWithin 12 months 9,000 17.4

Working capital Within 12 months 27,700 53.7

Estimated listing expenses Immediate 3,700 7.2

Total proceeds 51,600 100


Main Key Concerns

1) The sustainability of BGRC’s attractiveness

According to the independent market research, the size of theme park industry

in Malaysia is estimated at RM300- 350mn revenue/year with approximately

7.4mn visitors (2010). With 521k visitors in Bukit Gambang Water Park

(BGWP) in FY10, BGWP is the 3rd most popular theme park in Malaysia, with

approximately 7.0% market share of the domestic theme park industry, after

Resorts World Genting (53.8%) and Sunway Lagoon (11.3%).

Not really a tourist hot spot.BGRC is located in Gambang, Pahang, which is

within the East Coast Economic Region (ECER). It is one of the largest

integrated resort cities catering for the residents from East Coast of Peninsular

Malaysia, as 70% of its visitors are local residents from that region. However,

we are less bullish on these due to 1) local residents will hardly pay a second

visit to the theme park within a year unless there are substantial new

attractions added to the theme park. As such, the growth prospect of visitor

arrivals could be limited; and 2) unlike Pulau Langkawi and Port Dickson,

Gambang is not a tourist hotspot and as such it will be less appealing for

foreigners who usually have higher spending power.

Not really a recognisable and in-demand brand. Table 2 shows the top 10

largest amusement parks in the Asia-Pacific region by annual attendance. Note

that 3 out of the top 10 amusement parks carry “Disney” brand name. This

suggests local residents and tourists will opt for “branded amusement park” in

choosing destinations for holidays. Furthermore, the top 3 largest amusement

park corporation by annual attendance are those theme park operators that

own a recognisable and in-demand brand – see Table 3. Although Sentoria is

now engaging in aggressive marketing campaigns to create brand awareness

via TV, Radio and newspaper advertisement, we do not think these marketing

activities could enhance the brand name in a short period of time.

Table 2: Amusement parks in Asia-Pacific by annual attendance (‘000)

Rank Amusement park Location 2008 2009 2010

1 Tokyo Disneyland Tokyo, Japan 14,293 13,646 14,452

2 Tokyo DisneySea Tokyo, Japan 12,496 12,004 12,663

3 Universal Studios Japan Osaka, Japan 8,300 8,000 8,160

4 Everland Yongin, Gyeonggi-Do, South Korea 6,800 6,169 6,884

5 Lotte World Seoul, South Korea 4,236 4,261 5,551

6 Hong Kong Disneyland Hong Kong, China 4,500 4,600 5,200

7 Ocean Park Hong Kong Hong Kong, China 5,030 4,800 5,100

8 Nagashima Spa Land Kuwana, Japan 3,734 4,700 4,465

9 Yokohama Hakkeijima Sea Paradise Yokohama, Japan 4,555 4,500 4,023

10 Happy Valley Shenzhen, China 3,180 2,800 3,050 Source: Themed Entertainment Association

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Table 3: Top 3 largest amusement park corporation (‘000)

Rank Amusement park corporations Country 2010 Major theme parks

1 Walt Disney Parks and Resorts United States 120,600 Disneyland

2 Merlin Entertainments Group United Kingdom 41,000 Alton Tower UK, Gardaland Italy, Legoland Parks

3 Universal Studios Recreation Group United States 26,300 Universal Studios

Source: Themed Entertainment Association

Rising competition in the amusement park industry.

Currently, there are 11 active theme parks in Malaysia. With Legoland

Malaysia scheduled to open by end-2012, the competition in the amusement

park industry is getting stiffer. Legoland Malaysia, the world’s sixth Legoland

and Asia’s first, aims to attract more than 1mn visitors for the first twelve

months of operation. Table 4compares some of the key features of BGRC and

Legoland. The expensive ticket price of Legoland could deter local residents,

the close proximity to Singapore and airports should be a draw factor for

tourists from overseas. In addition, Legoland could become a must visit

destination for tourists as well as local residents, given its unique theme park

offering.

Table 4: Comparisons

Bukit Gambang Water Park Legoland Iskandar

Total land size (acres) 45.8 76

1- Day Ticket price (Adult, RM) 21.9 140

Owner Sentoria Group Bhd Merlin Entertainments Group

Travel time from KL (hour) 2.5 3.0

Travel time from Singapore CBD (hour) 5.7 0.75

Travel time from closest airport (minutes) 27 20

Source: Company websites

2) Established property developer in Pahang, but it is still relatively

small in Malaysia in terms of property sales.

Affordable housing will remain as an important part of the group’s property

development business as the group believe affordable housing is less

susceptible to those cooling measured introduced by the policy makers.In

addition, as the government aims to create home ownership among first-time

buyers, we believe demand for affordable homes will remain resilient. As such,

we are positive on the group’s involvement in the affordable housing segment.

As one of the established developer in Kuantan, the group’s property sales

display resilience even during recent downturn. In the past 3 financial years,

the property division has been consistently generated more than RM80m

revenue/year to the group. Going forward, we expect its affordable housing

(township development) to generatestableearnings to the group.

According to NAPIC, Pahang launched 3,546 units of new residential units in

2010. In terms of property sales, a total of 2,080 units of newly launched

residential units in Pahang were sold in 2010. Sentoria’s new launches and

new unit sold of 907 units and 504 units, translating to a market share of

25.6% and 24.2% respectively. While we reckon that Sentoria is an established

developer in Pahang, its property development operation is relatively small if

we were to compare it with the Malaysian residential property market. Based

on total 47,698 new launches and 21,799 new unit sold in Malaysia during

2010, Sentoria only captures market share of 1.9% and 2.3% respectively.

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3) Unclear earnings visibility

The management expects the leisure and hospitality division to have an equal

contribution with property development division by 2020 when the entire 537

acres of land is fully developed. Premised on: 1) 500k visitors per theme park;

and 2) average spending per visitor of RM100 (vs. RM32/visitor currently), the

four theme parks are expected to generate recurring income of RM200mn by

2020. However, we are less convinced by the management’s projection due to

1) the ability to sustain 500k visitors per theme parks; and 2) the ability to

increase entrance fees and F&B charges for the theme parks.

Financial Highlight

The property development division contributed more than RM80mn

revenueover the past 3 financial years. In FY10, the group achieved a YoY net

profit growth of 44.2% on the back of 34.8% surged in revenue, due mainly to

the first full-year contribution from the leisure and hospitality division. For

FY10, property development and leisure and hospitality divisions contributed

69.1% and 30.9% respectively to the group’s total revenue.

Figure 3: Revenue breakdown by segment


Sentoria’s 10MFY11 net profit of RM38.2mn has surpassed its previous

financial year net profit of RM19.3mn. The net profit waspartly boosted by its

low effective tax rate.Going forward, we expect the property development

division to serve as a major earnings contributor, generatingthe bread and

butter sales to the group.

Earnings Forecast

We expect earnings to grow 10-18% for FY12-13. Our earnings projections are

premised upon the following assumptions:

� New property sales of RM155mn for FY12 and RM130mn for FY13;

� Number of visitors to theme park increased by 1.5k per year for FY12

and FY13; average revenue per visitor to increase 10% YoY for FY12

and FY13;

� Earning contributions from Arabian Bay resorts and Night Safari are

expected to begin in 3QFY12 and 2QFY13;

� Resorts operation: 5% YoY growth in average room rate; occupancy

rates:31-32% for FY12 and FY13.

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Valuation

There are no direct listed local competitors that are comparable to Sentoria.

However, for valuation purposes, we benchmark Sentoria to small-cap

property stocks listed on the main market of Bursa Malaysia. At IPO price of

RM0.85, Sentoria is trading at 6.4x CY12 PER, which is at par with its peers–

see Table 5. We value Sentoria at 6.0x CY12 EPS and derive a fair value of

RM0.80.We believe the discount of 0.4x multiple to average small cap PER is

fair given 1) its smaller market capitalization of less than RM400mn; 2) rising

competition in theme park industry; and 3) unclear earnings visibility.

Table 5: Peer comparison

Price (RM) Market Cap (RM mn)

CY11 CY12 FY11 FY12

YNH* 1.87 766.1 12.0 7.5 3.7 4.6

KSL 1.59 621.0 6.2 5.4 3.1 3.1

Plenitude* 2.10 567.0 5.8 6.0 4.0 4.5

Glomac 0.85 514.6 6.8 5.3 5.4 5.9

UMLand* 1.56 471.2 10.1 7.6 4.3 4.8

Crescendo 1.66 304.1 4.6 4.3 6.6 8.4

Hunza* 1.55 301.4 5.8 9.1 5.8 5.2

Bolton* 0.92 283.6 18.0 8.4 2.0 2.4

Hua Yang 1.56 224.6 4.6 3.7 3.6 4.4

Ivory* 1.05 195.3 4.0 6.6 7.4 4.8

Average 7.8 6.4 4.6 4.8

Sentoria 0.85 340.0 7.2 6.4 - 3.0

* Based on CY12 concensus estimates

Dividend yield (%)PER (x)

Source: Bloomberg, TA Securities

Earnings Summary (RM mn)

FYE Sep 30 2009 2010 2011* 2012F 2013F

Revenue 91.4 123.2 172.4 209.1 242.7

Gross Profit 25.4 38.6 61.3 75.3 87.4

EBITDA 21.4 27.8 46.6 63.0 74.4

Interest cost (0.4) (2.1) (2.4) (2.1) (2.8)

PBT 19.2 22.6 40.3 56.7 66.3

Tax (5.8) (3.3) 5.6 (5.7) (6.6)

Minority interests (0.0) (0.0) (0.0) (0.0) (0.1)

Net Profit 13.3 19.3 45.8 51.0 59.6

EPS# (sen) 3.3 4.8 11.5 12.8 14.9

PER (X) @ IPO price 25.5 17.7 7.4 6.7 5.7

DPS (sen) - - - 2.6 3.0

Dividend Yield (%) - - - 3.0 3.5

Sales Growth (%) 7.7 34.8 39.9 21.3 16.1

EPS Growth (%) (6.0) 44.2 137.9 11.3 16.9

EBITDA Margin (%) 23.4 22.5 27.1 30.1 30.7

PBT Margin (%) 21.0 18.3 23.4 27.1 27.3

Net Margin (%) 14.6 15.6 26.6 24.4 24.6

Tax Rate (%) 30.1 14.6 (13.8) 10.0 10.0

* Annualised

# Based on enlarged share capital of 400mn shares Source: TA Securities

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Appendix A:

Business Overview

Leisure & Hospitality

Sentoria is the developer and operator of Bukit Gambang Resort City (BGRC) in

Kuantan, Pahang. Built on 547 acres of land, BGRC is one of the largest

integrated resort cities with theme park, MICE (Meetings, incentives,

conferences and exhibitions) facilities and accommodation in Malaysia. BGRC is

located 35km from Kuantan town and 218km from Kuala Lumpur and is easily

accessible from the East Coast Expressway – see Figure 5.

Figure 4: Aerial View of BGRC


Figure 5: Route to BGRC


Attractions in BGRC:

i) Bukit Gambang Water Park (BGWP): Opened in mid 2009, the 45.8-acre

BGWP is one of the most popular theme parks in Malaysia, attracting more than

520k visitors per year since 2010. Within 2 years of opening, BGWP is the 3rd

most popular theme park in Malaysia ranked by visitor arrivals.

ii) Active Academy: Served as a complementary attraction to BGWP, active

academy offers a wide range of outdoor teambuilding activities for corporate

and families. All the activities are conducted by certified facilitators.

iii) MICE facilities: It has ample MICE facilities to accommodate multiple

functions simultaneously. The facilities have accommodated more than 500

groups thus far, the largest being 16 different groups totaling 2,400 pax in one

day.

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iv) Accommodation rooms: 998-room carribean Bay Resort is able to house

more than 2k pax, supporting the theme park “play-and-stay” proposition.

The group is continuously invest in BGRC’s attractions, MICE facilities and

accommodation to attract more visitors, increase length of stay and enhance

revenue per visitors. Currently, the leisure and hospitality segment contribute

about 30.9% of the group total revenue. The group expect contribution from

this segment to have an equal contribution with property development division

by 2020, when the entire 537acres of land is fully developed. Figure 6 and 7

shows the master plan and pipeline developments in BGRC.

Figure 6: BGRC Master Plan

Source: BGRC website, TA Securities

Figure 7: Pipeline developments in BGRC


Property Development

Since inception, the group has completed and delivered RM419.2mn worth of

affordable residences mainly in Kuantan – see Figure 8. The group has a

proven track record of delivering its properties ahead of schedule, whereby

90% of the properties completed ahead of schedule and 59% delivered 6

months ahead of schedule.

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Figure 8: Completed Projects


Current and future development

Currently, Sentoria has 4 on-going projects with an estimated GDV of

RM212.4mn – see Figure 9. It has also lined up RM541.7mn worth of new

launches within and outside BGRC, as well as its first foray in Selangor

(SalakTinggi)– see Figure 10. Beyond 2015, the group still has RM938mn

worth of projects to elevate the group to the next level – see Figure 11.

Figure 9: On-going projects


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Figure 10: Upcoming Projects


Figure 11: Future Projects


Figure 12: 10-year key milestones


Disclaimer

The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may

have an interest in the securities and/or companies mentioned herein.

forTA SECURITIES HOLDINGS BERHAD(14948-M)

(A Participating Organisation of BursaMalaysia Securities Berhad)

KaladherGovindan – Head of Research

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