Analysis and Assessment of Plenitude Berhad (PLENITU): A Comprehensive Overview of a Property and Hospitality Company

Plenitude Berhad ( $PLENITU / 5075 (PLENITUDE BERHAD) ) is a public listed company with a core interest in property development, property investment, and hospitality. Incorporated on 6 November 2000, the Plenitude Group has cultivated a diverse portfolio in the property sector, establishing a dependable reputation in real estate. In 2001, it ventured into the hospitality industry and presently owns over 2,000 hotel rooms across Malaysia, South Korea, and Japan, demonstrating significant growth and diversification.

PLENITU, closed at a price of RM1.15 per share on October 24th. Over the past year, the company has demonstrated a healthy price return of 17.3%, indicating its potential for growth and investor confidence. With a market capitalization of RM438.8 million, PLENITU is a significant player in its segment, although relatively smaller when compared to the overall property market capitalization, which stands at approximately RM82.72 billion. The company's last twelve months price-to-earnings (LTM P/E) ratio is 10.01x, where the industry average P/E is at 16.6x, suggesting an attractive valuation. Its earnings per share (EPS) stands at 11.48, showcasing its ability to generate earnings for its investors. Furthermore, PLENITU's dividend payout ratio is 2.61%, indicating that it distributes a portion of its profits to shareholders as dividends, which may be appealing to income-oriented investors.

About the free float ratio for their stock, the substantial shareholders collectively hold 59.21% of the company's shares. This ownership is divided among Ikatanbina Sdn. Bhd. with 32.19%, Fields Equity Management Ltd. with 21.54%, and En Primeurs Sdn. Bhd. with 5.48%. With no shares held by the board of directors and no shares resulting from buybacks or treasury stock, the company's free float stands at 40.79%. This free float is made up of shareholders who individually own less than 5% of the total outstanding shares.

For group financial performance in 4QFY23, The Group registered a revenue of RM131.1 million and net profit of RM20.0 million for the current quarter ended 30 June 2023 as compared to revenue of RM90.5 million and net profit of RM10.6 million in the corresponding quarter of the previous financial year. The property development division contributed higher revenue of RM90.9 million for the current quarter compared to RM70.3 million in the corresponding quarter of the previous financial year. The increase in revenue was mainly attributable to the higher sales from completed units Diamond 5, 2 & 3 Strorey Terrace Houses at Taman Putra Prima in Selangor in which vacant possession was delivered during the quarter, along with a newly launched Phase 1 – Magnolia, double storey terrace house at Impian Hills, Ulu Tiram Johor in 3Q 2023 and Cello 3B double storey terrace houses at Taman Desa Tebrau launch in 4Q 2023. On other hand, Hotel operations recorded a revenue of RM39.4 million for the current quarter, an increase of RM20.0 million compared to revenue of RM19.4 million in the corresponding quarter of the previous financial year. The substantial surge in revenue was driven by the higher hotel business attained in the current quarter coupled with the new addition of Ascott Gurney Penang and Travelodge Honmachi Osaka in year 2022.

Additionally, in yearly basis, for the financial year ended 30 June 2023, the Group recorded a revenue of RM361.7 million and net profit of RM38.5 million compared to a revenue of RM272.7 million and net profit of RM19.0 million for the previous financial year ended 30 June 2022. The higher revenue recorded for the year was mainly contributed by the hotel division which is recovering from the pandemic’s hit, with international arrivals starting to rebound after borders re-opened in April 2022. However, we can see the negative CAGR value for 5-year PAT of the company which stands at -1.6% from 2019 to 2023. It is mainly attributed to the impact of the COVID-19 pandemic. As this pandemic led to economic uncertainty, reduced demand, disruptions in the supply chain, and the rise of remote work contributed to this decline in profitability in that period. Apart from that, the company seems to be on the path to recovery after experiencing a decline that started in 2020 and beyond.

The current P/E ratio for the company is 10.01x, and the earnings per share (EPS) is RM0.11, which looks favorable when compared to the industry's average P/E of 16.6x. In my view, the company's potential growth rate is estimated at 20.70% in a bullish scenario, leading to an increased EPS of RM0.13. This optimistic outlook takes into account market factors, such as the implications of the 2024 budget on the property sector and government efforts to attract foreign investors. Noteworthy developments include the government's plan to make the MM2H program more accessible to foreigners, allocating RM10 billion for the expansion of the Skim Jaminan Kredit Perumahan, and infrastructure projects like LRT 3 and Penang LRT, which can stimulate property demand in specific areas of Malaysia. If this optimistic scenario happens, the price of RM1.73 per share, representing a 50.43% increase is most probably reasonable.

On the other hand, in the bear case, considering the company’s wary on the possibility of interest rate increases towards the end of the year, Worse still, the company's growth rate could be negatively impacted by as much as -10.60%, taking into account their historical growth. As when interest rates rise, borrowing becomes more expensive, which can dampen demand for real estate and lead to lower property prices. Higher interest rates can also increase the cost of financing for property development, potentially squeezing profit margins for property companies. In this case, the reasonable price may be around RM1.05. However, it is unlikely that the Bank Negara Malaysia (BNM) will raise interest rates at the end of 2023 as Inflation in Malaysia has moderated in recent months, and is expected to continue to do so in the coming months. Other than that, Global financial markets have been volatile in recent months, and a rate hike in Malaysia could further destabilize markets. The BNM is likely want to avoid this. A few economists have suggested that the BNM could raise interest rates by 25 basis points at the end of 2023, but this is seen as unlikely by the majority of economists. Therefore, I think the probability of this case is anticipated to be lower than that of the bullish case.

Also, it’s worth noting that the company’s Book value per share is at 4.25x currently, whereas the company’s share price is at RM1.15 per share. As for comparison, other companies in property, $UEMS / 5148 (UEM SUNRISE BERHAD) and $TAMBUN / 5191 (TAMBUN INDAH LAND BERHAD), their book value per share are at 1.67x and 1.34x respectively, whereas their current market share is RM0.84 and RM0.77 per share respectively.