Global Oriental Bhd - Due for a re-rating?

INVESTMENT MERIT

An unpolished gem. Apart from owning >200 acres of landbank in Batu Kawan, the group is also one of the few established developers in Seri Kembangan with a remaining landbank size of >200 acres as well. Besides, it also has two prominent joint-venture projects namely da:men or Gateway (a new mall in USJ Subang Jaya) and a mixed development in K.L. with Lembaga Getah Malaysia with gross development values (“GDV”) of RM1,000m and RM860m respectively. Based on our best guesstimates, this two 2 projects together with its ongoing projects in Seri Kembangan and Batu Kawan should provide ≈RM2.0b in GDV for the next 4-5 years.

- Numbers are getting better. The earnings has turned back into the black in FY11 after three consecutive years of loss-making. It has also recorded c.RM32m net profits for the last two financial years. In its recent 4QFY13 results, the group’s revenue increased by 55.3% to RM73.6m as compared to RM47.4m in 4QFY12 or 9.9% as compared to RM67.0m in 3QFY13. Its pre-tax profit also increased significantly to RM17.6m from RM1.3m in 4QFY12 and 14.6m in 3QFY13. Its net profit, however, were flat at RM32.0m for the last two years due to  a lower taxation in FY12 of 10.6% vs. 28.1% in FY13.

- A laggard play? Being one of the potential beneficiaries of the opening of the Second Penang Bridge, the stock has underperformed its peers such as Tambun Indah (Not Rated) by 31.4% while it has performed inline with KLPRP Index. 

- Deep in value?  Based on our calculations, we believe that GOB will be able to register approximately RM36m in net profit or an EPS of 15.8 sen in FY14, representing <4.5x PER at this level. The RNAV for the stock is high at RM3.08/share and the projected FY14 book value per share (“BPS”) is at RM1.27.

- TRADING BUY with a fair value (“FV”) of RM1.23 based on a conservative 60% discount to its RNAV, implying a targeted FY14 PER and PBV of 7.8x and 0.97, respectively. These valuations are not excessive vis-à-vis the small cap property stocks average of 11.4x and 0.98x, respectively.

TECHNICALS

- Resistance: RM0.72(R1), RM1.10 (R2)

- Support: RM0.63 (S1), RM0.55 (S2)

- Comments: A bullish “Flag” formation appears to be taking shape on the daily chart. Should the share price break above the RM0.72 resistance, we reckon that GOB could potentially extend its gains towards RM0.85, and possibly RM1.10 next. Watch for a breakout.

BUSINESS OVERVIEW

Global Oriental Berhad (“GOB”) (formerly known as Equine Capital Berhad) was listed on the Main Market of Bursa Malaysia on 28 October 2003. The GOB Group is principally involved in the development of residential and commercial properties, and sale of development lands. Over the years, the group has successfully developed and handed over more than 6,800 units of residential and commercial properties with a GDV of more than RM1.3b. Its niche in township development since 1992 is best exemplified by its three flagship projects namely Taman Equine, Putra Permai and Pusat Bandar Putra Permai.

Source: Kenanga