Gallant Venture - the Sleeping Dragon Awakes

We initiate on Gallant Venture “Gallant” with SGD0.57 TP, derived through SOP RNAV, which represents a 58% upside and recommend BUY. Gallant is the largest land owner in Bintan Island (of Indonesia) with landbank a quarter the size of Singapore. After a long development gestation period, catalysts for unlocking its value are:
i) new renowned resorts open in Lagoi Bay,
ii) new airport to accelerate its projects, and
iii) synergistic businesses ride on the success.

Inflection point on the horizon, landbank value may be unlocked. It has been a long wait as financial crises slowed Bintan’s development timeline but currently, our checks show that Lagoi Beach Village is complete and ready to open in 2H14. An ultimate resort tourism environment, Bintan Resort 3.0 seems ready. The inflection point is now on the horizon as new renowned resorts open. Momentum may snowball, to finally unlock the value of its 14,000ha landbank.

Establishment of an airport could accelerate Bintan’s development. The new Bintan airport could fast-track Bintan’s development through two major avenues:
i) tourist numbers will jump to 1m by 2016 through the introduction of direct flights for regional visitors, greatly benefiting Gallant’s Bintan Resort;
ii) the airport will also mean the introduction of the aerospace MRO industry tenant, revitalizing Gallant’s Industrial Park.

Synergistic business rides the wave, providing recurring income. Gallant’s business arms on Bintan are highly synergistic, riding on this wave together. As activities on Bintan grow, industrial park rental and captive utilities customers on Bintan and Batam will grow as well, providing stable recurring income. Hence, the new airport and Bintan Resort 3.0 will actually help all of its Bintan businesses.

RNAV of SGD0.71/share. With a 10.1% WACC, our conservative valuation of its 14,000ha Bintan Resort land bank yields
SGD1,457m with industrial land development opportunities fully discounted. Its Shanghai venture is valued at SGD893m while its utilities and industrial park rental show SGD771m and SGD465m value respectively. Adding Indomobil target valuation of SGD1,383m, we get RNAV of SGD0.71/share.

Risks. These include:
i) volatile currency rates,
ii) execution risks,
iii) unexpected crises, and
iv) an underperforming automotive subsidiary.