Excerpts from UOB Kay Hian report
Analysts: Edison Chen & Yeo Hai Wei
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Asset Disposal Unlocks Value and Privatisation Potential At the core of GL is its rare hotel portfolio with >4,700 rooms in prime London. UK/London hotel performance has reached a record high in 1H17 with growth expected to continue. |
INVESTMENT HIGHLIGHTS
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♦ Initiate coverage with BUY and SOTP-based target price of S$1.185, implying 30.9% upside. We value GL at US$1.13b, opting to be conservative with a generous 40% discount to our SOTP valuation of US$1.89b. GL is currently trading at only 0.8x P/B. We believe our valuation of GL’s hotel and casino portfolio is conservative, and note the possible upside from the hidden value in its hotel property assets.
♦ Rare hospitality assets with over 4,700 rooms in prime central London. GL’s core hotel business has a portfolio comprising 15 owned and 2 managed hotels in the UK with over 4,700 rooms sprawled over tourist hotspots in London’s prime districts and another 300+ rooms in key UK locations. It also holds royalty assets over the Bass Straits, the Clermont Casino as well as 55,000 acres of land in Hawaii.
♦ UK/London hotel performance at record high, growth to continue. With the weakened sterling, UK/London hotel performance (room rates/occupancy) hit a record high in 1H17 with growth expected to continue. PwC is forecasting 3.3% growth for the full 2017 and GL is likewise guiding a similar figure for FY18 after a 7% yoy growth in sterling terms in FY17.
♦ Asset disposal to unlock value with possible gains of US$80m. While GL has been exploring options to sell its casino and Hawaii properties for a while, we have seen more concrete results recently. There was an offer for its casino business (according to GL’s FY17 annual report), and GL has finally posted its Molokai property for sale with strong buyer interest.
If the Molokai sale is sold at its posted US$260m, this could translate to gains of around US$77m. For the casino, we expect the sale to complete before end-FY18, which could provide around 10% gains (US$3m). We view successful disposals as catalysts that could reduce the discount facing the company.
 "Healthy balance sheet and steady dividends mean investors get paid to wait. "We expect net debt to drop from US$182.2m (FY17) to net cash of US$23.4m (FY20) and net financing cost to drop to US$7.7m in FY20. With a healthy balance sheet and steady dividends (GL has been paying stable dividends for more than the past decade, and we expect the 2.2 S cents dividends to continue), investors can get paid to wait for positive share price catalysts." -- Edison Chen (photo) & Yeo Hai Wei |
♦ New MD streamlining assets; deep discount of 0.8x P/B opens privatisation potential. One possible reason why the asset disposals are finally happening could be because of GL’s new Group Managing Director, Mr Tang Hong Cheong, who came from a strong banking background.
Mr Tang is also Guoco Group’s President and CEO, which leads us to believe that the decision could be to streamline assets for a potential privatisation.
We further note that GL is currently trading at only 0.8x PB and that controlling shareholder and Malaysian tycoon, Mr Quek Leng Chan, had previously offered to privatise GL at S$1.25/share in 2005.
Full report here.