SINGAPORE (Oct 31): UOB KayHian is starting GL Limited with a “buy” with $1.185 target price given its potential for privatisation as well as asset disposal.
The hotel operator is also seeking to unlock value through non-core asset disposal with up to US$80 million gains expected, says analyst Edison Chen in a report for retail investors on Tuesday.
While GL has been exploring options to sell its casino and Hawaii properties for a while, there was an offer for its casino business and GL has finally posted its Molokai property for sale with strong buyer interest.
“If the Molokai sale is sold at its posted US$260 million, this could translate to gains of around US$77 million. For the casino, we expect the sale to complete before end-FY18, which could provide around 10% gains or US$3 million,” says Chen.
Chen also sees the potential of a privatisation for GL.
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 plus 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.
“We value GL at US$1.13 billion, opting to be conservative with a generous 40% discount to our SOTP valuation of US$1.89 billion. 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,” says Chen.
One possible reason why the asset disposals are finally happening could be because of GL’s new group MD, Tang Hong Cheong, who came from a strong banking background. Tang is also Guoco Group’s President and CEO, which leads Chen 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, Quek Leng Chan, had previously offered to privatise GL at $1.25/share in 2005,” says Chen.
Meanwhile, UK/London hotel performance continues to grow. With the weakened sterling, UK/London hotel room rates and 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% y-o-y growth in sterling terms in FY17.
Healthy balance sheet and steady dividends mean also investors get paid to wait, says Chen.
“We expect net debt to drop from US$182.2 million in FY17 to net cash of US$23.4 million in FY20 and net financing cost to drop to US$7.7 million 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 cents dividends to continue -- investors can get paid to wait for positive share price catalysts.”
As at 11.29am, shares in GL are up 1 cent at 92 cents.
