LANDMARKS BHD
Primary Symbol & Exchange: LANDMRK
1643 - Ordinary Shares - Malaysian Stock
Exchange Price/share @ 20/5/2011 RM:1.56
Mkt Cap RM’m : 749.9
Shares (m): 480.68 Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Hotels
Fox Capital: Hospitality
Executive Chairman: Dato’ Zakaria bin Abdul Hamid
Managing Director: -
KNOWN MAJOR SHAREHOLDER(S) (as at 31/12/2010)
Genting Bhd 30.31%
North Symphony Sdn Bhd+ 17.99%
+ 50% owned by Dato' Zakaria bin Abdul Hamid
Background.
Landmarks was set up in 1973 as Basset Rubber Company, which actively ventured into oil palm and rubber cultivation. It also had joint ventures with Perbadanan Kemajuan Negeri Perak to develop housing projects in Kamanting and Taiping. During its initial years, the Group changed its name several times, from Basset Rubber Company to Ytong Malaysia, followed by Premium Holdings. In 1983, it changed its name to Landmarks Holdings and merged with Landmarks Corporation, and continued to actively engage in rubber and oil palm, housing, property, hotel and shopping complex businesses. In 1989, it was officially incorporated and commenced operations as an investment holding company with the takeover of the entire undertaking, assets and liabilities of Landmarks Holdings. It was listed on the Kuala Lumpur Stock Exchange on 8 January 1990.
Since the appointment of Datuk Zakaria bin Abdul Hamid as Group Chairman on 24 October 2007, Landmarks has realigned its group strategy to focus on the lifestyle sector. The Group divested all of its non-core and non-strategic assets to focus on moving forward with its new theme - “to be a leading player in the lifestyle sector, focusing on resorts, hospitality and wellness in the South East Asian region”.
Figure 1 illustrates the assets that had been disposed by the Group in order to realign its strategy and restructure its debt:
Figure 1: Disposal of assets
Date..... Company........................... %.... Consideration
13-Oct-99 President Hotel Sdn Bhd...........(67.4%) RM108.4m
24-Oct-02 Mayne Nickless Limited............( 2.3%) RM97.2m
28-Apr-04 Setia Haruman Sdn Bhd ............(25.0%) RM50.0m
15-Oct-04 Mont Kiara Land..................(100.0%) RM17.4m
25-Nov-04 Tiara Labuan Sdn Bhd.............(100.0%) RM3.0m
23-Sep-05 MSL Properties Sdn Bhd ...........(50.0%) RM77.9m
15-Feb-06 Qualitas Healthcare Corp..........(60.0%) RM10.3m
22-Sep-06 Mediscreen Sdn Bhd................(70.0%) RM3.8m
8-Dec-06 Mayflax Sdn Bhd....................(50.0%) RM0.8m
11-Apr-07 Sungei Wang Plaza Sdn Bhd........(100.0%) RM284.8m
5-Sep-07 Shangri-La Hotels (Malaysia)...... (26.6%) RM287.0m
20-Nov-07 Archipelago Resorts Sdn Bhd..... (100.0%) RM72.1m
5-May-08 Teknologi Tenaga Perlis Consortium (20.0%) RM179.2m
...............................................................Total RM1,191.8m
Source: Bursa Malaysia,
After disposing its non-core and non-strategic assets, the Group repaid most of its debt prior to the restructuring. It has kept its balance sheet healthy with net cash position since FY07. The Group also used some of the disposal proceeds to purchase 100% stake in Bintan Treasure Bay Pte Ltd, a special purpose vehicle that owns two parcels of leasehold land on Bintan Island measuring 338 hectares. The land is held under its subsidiary, PT Pelangi Bintan Indah. Bintan Treasure Bay Pte Ltd is also the master developer of Treasure Bay Bintan, a “Water Resort City” that will comprise resorts, wellness, cultural, residential and commercial developments with supporting facilities such as a Customs, Immigration, Quarantine and Port (CIQP) terminal, marina, cruise transit point, education, medical, convention and other integrated entertainment facilities.
The 100% stake in Bintan Treasure Bay Pte Ltd was bought in three tranches between 31 May 2007 and 2 May 2008 at total cost of RM764.7m.
Besides its large land bank on Bintan Island, Landmarks’ other major asset is The Andaman Langkawi resort hotel. The management appointed Sheraton Overseas Management Corporation, an affiliate of Starwood Hotels & Resorts Worldwide, as the new perator of The Andaman Langkawi on 10 December 2009. The resort has since been rebranded “The Andaman, a Luxury Collection Resort” and included in Starwood’s portfolio of The Luxury Collection Hotels & Resorts. The rebranding includes upgrading of the property, and refurbishment of rooms and facilities, which is currently on-going.
WHY WE FEEL THIS COUNTER IS UNDER VALUED
(1) Under-researched, cheap valuation
Landmarks is an under-researched stock with no coverage currently. Hence, the cheap valuation is partly due to the lack of information flow to the investment community, and because there is no concrete guidance on the master plan for Bintan as it is still being finalised. A change is expected to come in June where a firm master plan will be provided. The stock is currently trading at a 127% discount to its book value of RM3.54. It also has a strong balance sheet – it has been in net cash osition since FY06.
Landmarks is a cheaper proxy to rising land prices in Bintan, the gateway to the Riau Archipelago. The current share price (RM1.56 as at closing on 20/5/2011) is even below Genting Berhad’s average book cost of RM2.05 per share. Landmarks is trading at a hefty discount of more than 50% to our estimated RNAV of RM4.81. It also boasts RM130m net cash, which works out to RM0.27/share or approximately 17% of the current share price.
(2) Huge potential in Bintan development.
Huge potential can be seen in Landmarks’ Treasure Bay Bintan. Although Landmarks has sold most of its other assets and currently only owns the Andaman Langkawi, 20% + 1 share in MCL Properties, and its 338-ha land bank in Bintan Island, the Group will reap huge rewards from its bold move to become one of the leading hospitality layers on Bintan Island.
The early signs are promising as Gallant Ventures, the master developer for Bintan, has managed to sell c.SGD$85m worth of its Lagoi Bay development land to investors and developers. Gallant Venture has also sold c.85% of available commercial sites in the Lagoi Bay Village project. Besides that, the government of Indonesia is eager to promote Bintan Island as an alternative tourist destination to Bali. Gallant Ventures has started construction on Lagoi Bay and is believed to be looking for potential JV partners to build an airport on Bintan.
The airport will benefit Landmarks, which 338-ha site on Bintan is located next to Bandar Telani Bintan Ferry Terminal, the main gateway to Bintan Island from Singapore. We believe Landmarks deserves a higher valuation after the positive re-rating given to Gallant Ventures
(3) Treasure Bay in good stead to get gaming license
The biggest wildcard for Treasure Bay Bintan is the gaming license. Landmarks will eventually leverage on its major shareholder and gaming operator, Genting, to obtain a gaming license from the government of Riau. We believe it is only a matter of time before the government of Indonesia endorses that granting a license for gaming operations in Indonesia would help to attract more visitors, as demonstrated by Resorts World Sentosa and Marina Bay Sands in nearby Singapore.
On 24 January 2008, Bintan Treasure Bay signed an agreement with PT Wisata Hiburia, which has been granted a Surat Izin Tetap Usaha Wisata Internasional Terpadu ksklusif (Decree for Permanent Licence of International Exclusive Integrated tourism) by the Kebupaten Bintan. The decree improves the prospect of the government allowing gaming outlets to be opened within Treasure Bay. Under the agreement, PT Wisata Hiburia has assigned Treasure Bay as an Exclusive Integrated Tourism Zone (EITZ), which grants permission for certain licensed activities to be conducted within the development. These licensed activities include medical tourism, multimedia and information technology hosting, and games and entertainment, including gaming. With this zoning agreement in place, coupled by Genting’s successful foray into the gaming industry in Singapore with Resorts World Sentosa, we believe it is only a matter of time before Genting decides to flex its muscles as major shareholder of Landmarks and push for a gaming outlet in Treasure Bay to tap into the thus far untested gaming industry in Indonesia. We think that the target market for Landmarks’ casino operations will be different from the patrons in Singapore whereby the operations in Bintan will be on a smaller scale, hence becoming synergistic to Genting’s casino in Singapore.
(4) Strong major shareholder (Genting Bhd) whose average cost is at RM2.05/share.
Genting is currently the largest shareholder of Landmarks with 30.3% stake in the Group, which it had bought between 18 August 2006 and 28 December 2007. It average cost is RM2.05 per share, which is 40% higher than its current share price of RM1.53.
