UOB KH maintains 'buy' call on Guoco Leisure and $1.03 target price
Analyst: Loke Chunying
Out of the 8,280 rooms in UK that GuocoLeisure operates, 5,110 rooms are in London. The company operates under two hotel brands, namely, Guoman and Thistle. Photo: Company· Guocoleisure (GLL) reported a loss of US$6.5m for 3QFY13 primarily due to the omission of a tax credit of US$20.6m in the prior year. While we had forecast a drop in profits, GLL’s 3Q earnings came in lower than estimates due to higher personnel and other operating expenses. · Revenue was lower (-7.3% yoy) due to seasonal slow down in the hotel segment, while contributions from oil royalty also fell 9% on weaker crude oil prices.
· Personnel and other operating expenses were also higher despite the lower revenue attributable to additional staff and rising labour costs as well as higher marketing fees in the hotel segment.
· Balance sheet remains strong. The company continues to have a low D/A (21%) with an interest coverage ratio of 2.5 for 9MFY13.
· Maintain BUY with a SOTP based target price of S$1.03 as fair value of GLL’s assets remains unchanged.. Despite the lower earnings, we believe this is due to the direct aftermath of the summer Olympics and weakness in oil price. On our SOTP based target price of S$1.03, the implied target FY12 P/B remains undemanding at 1.0x.
· We will release additional details this week, after meeting with management.
Lim & Tan Securities expects privatization offer for GuocoLeisure?
We suspect a replay of Guoco Group (HK$92.40,up 10 cents) could be at work in Guoco Leisure (85 cents, up 1/2 cent) where the former had reported a huge US$330mln loss in 1H2012 only to see Tan Sri QLC launch in privatization offer in Dec’12 at HK$88 per share and recently revised it up to HK$100 per share, significantly above the pre-privatization price of HK$60.
Guoco Leisure had just reported a loss for 3Q to Mar’13 of US$6.5mln due to the eurozone crisis.
Technically, a break of the 78-80 cents level suggests lower levels. It is currently trading at 0.77x its NAV of $1.10 a share. We do not yet have a rating on the stock.
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