SINGAPORE (Oct 31): Tayrona Financial believes Malaysia-based property developer Capital World, formerly known as Terratech Group, has a “compelling upside of almost 300%” amid "improving fundamentals that justify a rerating".

Tayrona, the equity research firm formerly known as NRA Capital, values Capital World at $211 million, or 14.7 cents per share – close to four times the stock’s last closing price of 3.7 cents on Oct 30.

Capital World’s shares are currently trading near its all-time low of 3.5 cents on Oct 15. Since opening at 19.8 cents in its debut on the SGX Catalist board in May last year, its share price has fallen steeply.

In a report on Wednesday, analyst Liu Jinshu says the plunge “could have been partly due to earlier shareholders selling out amidst poor trading liquidity”.

“With improving fundamentals, we reckon that the group’s share price has bottomed and rate Capital World ‘overweight’ with a high return and high-average risk view,” he adds.

The way Liu sees it, Capital World “deserves credit” for achieving the major milestone of opening its flagship Capital 21 mall on Oct 17.

The mall is part of the group’s Capital City Project in Johor, a massive 1.2 million sq ft development. Phase 2 of the development is expected to include a hotel, serviced suites, serviced apartments, and one of the top five largest indoor theme parks in the world.

See: Capital World launches Malaysia's largest indoor theme park in Johor

“While critics may assert that Capital World lacks scale with only one key project, the company is currently priced modestly, at a market capitalisation of $48.7 million, whereas Capital City has an overall gross development value of RM1.78 billion,” says Liu.

“In fact, we value the group at $211 million, suggesting attractive upside of almost 300%. What has depressed the group’s share price has been the combined effect of poor liquidity, selling by initial investors and negative sentiment against Malaysian developers,” he says.

However, the group’s external auditor Ernst & Young has material uncertainty about Capital World’s ability to continue as a going concern as a result of a weak balance sheet.

According to Liu, these have been due to various factors such as the group’s current liabilities exceeding current assets by RM68.07 million as at June 20, 2018; the group’s borrowings to cash resources; and the challenging conditions of the Johor property market which may affect the group’s ability to monetise its current assets to pay liabilities.

“Notwithstanding the success of the mall and its theme park, there is still the risk that the group is unable to obtain bank financing,” says Liu. “That said, we do not see Capital World as a high-risk prospect as much of the downside has been factored into its share price.”

As at 3.28pm, shares in Capital World are trading 0.3 cent higher, or up 8.1%, at 4 cents.

According to Tayrona valuations, the stock has an estimated price-to-earnings ratio of 1.8 times for FY19.