Sitra

Sitra: ($0.016) Undervalued shell company with bonus hidden industrial property stake Sitra expects to record a valuation surplus for the 10% stake it holds in an industrial property located at 18 Sungei Kadut Street 2. The land, which has an open market value of $8.7m, will be redeveloped into a 0.3m sf gfa building over the next 18 months at an estimated cost of $55m, implying a total cost of $63.7m. Upon TOP in Apr '16, consultant OrangeTee estimates the building will have a gross development value of $100m. We therefore estimate the attributable valuation surplus arising from Sitra’s 10% stake at $3.6m (~0.5¢ per share), or 30% of its current market cap of $12m. Incidentally, Sitra, which is listed on the Catalist-board, runs only a tiny outdoor furniture and wood-based furnishing business, and may be essentially viewed as a shell company. In this respect, Sitra’s market cap already represents a steep 20% - 60% discount from the whispered price of between $15m and $20m for a shell company. Having recently completed a 7-for-5 rights issue at 1¢ apiece, to raise ~$4.4m in gross proceeds, Sitra will be able to pare down its borrowings of $2.6m, and recapitalise its balance sheet to create a stronger growth platform. Assuming: i) shell company valuation: $15m + ii) NAV post-rights: $5.7m + iii) Valuation surplus from industrial property: $3.6m, Sitra could have a sum-of-parts valuation of $24.3m (3.2¢ per share), representing nearly 100% upside from current levels. Key risks: - As a penny stock, the counter is prone to volatile price movements - Lack of M&A interest to support shell company valuation