SINGAPORE (March 9): KGI Securities has initiated coverage of SUTL Enterprise, the operator and owner of ONE°15 Marina Club in Sentosa, with a “buy” recommendation and a target price of $1.09.
SUTL is “a sparkling gem that has yet to be fully appreciated,” says KGI’s research team in a Wednesday report. “The company’s business model allows it to generate recurring income streams and achieve an impressive return on invested capital (ROIC) of over 15% per annum in the last two years.”
SUTL saw full-year earnings more than double to $3.9 million from $1.6 million ago, after switching its focus to its new marina-related business.
The improvement was largely attributable to the divestment of the group’s legacy IT peripherals distribution business, following the disposal of its 51% remaining stake in Achieva Technology in Jan 2016.
(See: SUTL Enterprise’s 4Q16 performance sees significant improvement)
“Capitalising on the scarcity of berths and growing demand for luxury yachting activities in Southeast Asia, SUTL is looking towards overseas expansion,” says KGI.
This involves a two-pronged strategy for SUTL. On top of acquiring, developing and operating its own marinas, it will also look to provide consultancy and management services to third-party marinas.
“SUTL currently operates in a net cash position without any debts,” adding that the group has a “$40 million war chest to fund [its] acquisition drive”.
In the pipeline for SUTL are two projects that KGI believes could contribute to further upside.
First, SUTL’s 60%-40% joint venture to develop the existing marinas in Puteri Harbour in Iskandar Malaysia is expected to commence construction in the first half of 2017 and to be completed by the third quarter of 2019.
This integrated marina development, which will comprise two private marinas and a public marina, is expected to carry the ONE°15 brand.
In addition, SUTL will be providing management and consultancy services to ONE°15 Brooklyn Marina, located along the Brooklyn Bridge Park in New York City.
This will be for a fee of 5% of the annual gross revenue of to ONE°15 Brooklyn Marina, according to KGI.
Moe importantly, KGI believes “it is likely that ONE°15 Brooklyn Marina would, in time, be added into SUTL’s assets.”
According to KGI, Singapore Marina Development Corp as the majority stakeholder in the joint venture company that owns the Brooklyn marina. SMDC is a wholly-owned subsidiary of SUTL Global – the parent company of SUTL.
For now, the marina is expected to be officially launched this year, and will sell 2,000 private club memberships for US$25,000 ($35,300) each.
“This would potentially add $3.5 million in one-off pre-tax gains to SUTL,” says KGI.
As at 1.15pm, shares of SUTL are trading 2.5 cents higher at 79.5 cents.
