KIM ENG RESEARCH, Aug 23

We initiate coverage of Gallant Venture with a 'buy' recommendation and a target price of S$1.02. We believe Gallant's share price has a significant 36 per cent upside based on its undervalued landbank, stable cash flows from its industrial estates, and blossoming utilities and resort operations sales from the planned development of Bintan Resorts.

Gallant's property development business has 18,400 ha of land held in its books at just S$2.97 per sq m, or S$541 million in total. Gallant expects that it can sell this land for 5-30 times its book value, based on indicative pricing. If we conservatively revalue this land bank for development over the next 25 years, this would yield a discounted RNAV (revised net asset value) for the land bank alone at S$2.0 billion, or a surplus of 60 cents per share.

However, for our base-case valuation of S$1.02 per share, we are only factoring in the development of the Lagoi Beach Village, or less than 10 per cent of Gallant's extensive landbank. This first phase of Gallant's land sales will be developed over the next 5-7 years. We also include cashflows from industrial parks, resort operations and utilities. Resorts and utilities earnings will be progressively enhanced from the ongoing development of Bintan Resorts. Despite market speculation on a possible casino development on Bintan, we have not factored that in. The stock rates a 'buy' as it is. BUY