Deep-dives

SUTL Enterprise (SUTL SP)

Asia’s best marina in a growing city at a P/E of 7x

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SUTL Enterprise (SUTL SP - US$42 million) is a Singapore-listed marina operator that’s most famous for its One°15 Marina in Sentosa Cove. It’s a FinTwit favourite and has been mentioned before by Huat Fearful & Greedy, Mokapu Capital and David Katunarić.

The company is a part of Singaporean conglomerate SUTL Global, which distributes consumer products across Asia. When the founder's son took over in the early 2000s, he saw potential in Singapore’s private marina industry. In 2003, he bid for a contract to operate a marina on the island of Sentosa.

In 2015, the marina business was injected into a listed subsidiary of SUTL, now called “SUTL Enterprise”, that’s become a pure-play marina operator.

SUTL’s flagship ONE ̊15 Marina in Sentosa Cove has berths for 270 yachts and 14 mega-yachts, together with a clubhouse for 3,800 members. The membership entrance fee alone is about SG$60,000 per person. Having your yacht in the marina can cost SG$50,000 per year or more.

Customers seem to be happy to pay these prices. The One°15 Sentosa Cove marina is 97% occupied, and in the past, the waiting list for club membership has been more than 2 years long.

The reason why customers are willing to pay is that there aren’t many alternatives. Certainly not on Sentosa, where only some landed houses have waterfront berths and those that do, can’t accommodate larger yachts. Another competitive advantage for the One°15 Marina in Sentosa Cove is that it offers a customs, immigration and quarantine facility, enabling visitors to enter the country directly through the marina.

SUTL’s corporate structure is complex. The parent SUTL Group is much larger and probably has bargaining power. CEO Arthur Tay controls both the ListCo and its parent. SUTL Enterprise was listed through a reverse merger, meaning fewer information disclosure requirements than companies that have gone through the IPO route.

On the other hand, Arthur Tay does seem to care deeply about his legacy and reputation. I think he means well. In the past few years, SUTL Enterprise has been generous with dividends. There haven’t been many related party transactions either.

In the past few years, SUTL Enterprise has had a tough time. A failed project in Malaysia has weighed on earnings since 2019. Several new marina projects in China and Indonesia were delayed due to COVID-19. And F&B, banquet and hospitality revenues slumped as tourism ground to a halt.

But these issues are now in the past. SUTL shut down their Malaysian operations, and their assets in the JV are being liquidated. The Nirup Island project, a few kilometres from Singapore, has just been completed and will contribute to earnings from 2025. And the Sentosa Cove marina has been upgraded to accommodate more super-yachts. Thanks to these developments, SUTL’s earnings have been on an upward trajectory.

I don’t expect fast growth. The company has guided for 7-10% yearly price increases in the past, though I think mid-single-digit price increases would be a more reasonable assumption. A key driver for these price increases is the limited supply of marinas and the amount of capital flowing into Singapore each year from other parts of the world. The new projects in China, Indonesia and potentially Thailand could also boost revenues in the medium term.

I foresee a 2023e P/E ratio of 7.1x and a dividend yield of 7.7%. Most cash is restricted and should not be counted as part of net debt. But even if you deduct the “deferred membership income”, you still get to an EV/EBIT multiple of just 5.0x － almost unheard of for a moaty asset in this part of the world.

The worst-case scenario for SUTL Enterprise is that the One°15 Marina in Sentosa Cove leasehold expires in 2034 with no extension. The company is trying to engineer an extension of the lease, and I think they will probably be successful. I doubt that the government would take a property where SUTL has invested more than SG$70 million without compensation. The government should also be pleased that One°15 Marina is ranked as one of the best marinas in the world. But legally, the government has the right to take over the land upon the expiry of the lease.

In any case, I don’t think the valuation assumes much success in extending the lease. If you discount cash flows in the remaining 10-year term, they’ll easily exceed the market cap. Also, the current liquidation value exceeds SUTL’s market cap by some margin.

Finally, note that the stock is illiquid. But it should not be impossible to accumulate a small stake for a personal account.