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 Limited (“GLL”) is a S$1b company in market capitalization. Mr Quek Leng Chan, #5 richest man in
GLL’s intermediate holding company is Guoco Group Limited which is in the process of being taken private by Mr Quek.
Investment merits
Potentially undervalued assets
According to GLL’s annual report 2012, GLL has 8,911 rooms with 8,280 rooms in
GLL operates under two hotel brands namely Guoman and Thistle brands. These hotels are valued at US$1.2b in GLL books as of 31 Dec 12.
With their portfolio of assets (refer to the 2012 annual report), there is a likelihood that the assets may be worth more than what are recognized in the books.
Another interesting asset which they have is the 55.1% entitlement to the Weeks Royalty. The Weeks Royalty refers to a 2.5% overriding royalty relating to all hydrocarbons produced by BHP Billiton Limited from designated areas in the Bass Strait, Australia, granted by BHP.
The production is undertaken by BHP and Esso. According to Esso’s estimates, the estimated reserves for these designated areas are likely to last approximately another three decades.
This asset is recognized on GLL’s books with a figure of US$122.4m as of 30 Jun 12. Although I am not an expert, given the steady cash flows, it is likely to be undervalued on GLL’s books.
It is also noteworthy that GLL has 54,636 acre of land parcel on Molokai island in Hawaii and some properties in Fiji. As of 31 Dec 2012, these properties are recognized in GLL’s books around US$177m.
According to DMG research in June 2012, GLL has entered into transactions which involves several land parcels changing at prices above its book value. This is another area where its assets may be undervalued.
Potential revaluation exercise
Guocoleisure shares recently traded at 73 cents.
I guess the financial adviser would have to do a valuation of Guoco Group Limited’s assets in order to be able to assess the attractiveness of the offer by Mr Quek.
If this were the case, it is likely that Guocoleisure, being part of Guoco Group Limited, may have to do a revaluation of its assets. Given current market conditions and the nature of GLL’s assets, the revaluation exercise is likely to be positive for GLL.
Decent valuations
GLL trades at 0.68x P/BV (
Likely delisting candidate in the long term
Within two months, Mr Quek has offered to take Guoco Group Limited and Hong Leong Capital private. Although it is unlikely that he will launch an offer to take GLL private soon, this may arguably be his plan in the long term.
Recall that Guoco Group offered SGD1.20 / share to privatise GLL in 2005 but it didn’t succeed. In addition, Mr Quek Leng Chan has been regularly accumulating GLL on the open market. The most recent transaction was the purchase of 667K shares @$0.64875 on 16 Oct 12.
Investment risks
No rated analyst coverage
According to Bloomberg, there is no rated analyst coverage on GLL. The drawback to this is that investors and fund managers are still not familiar with GLL business and prospects, thus it may take some time for Mr Market to recognize this undervalued gem. Conversely, investors who understand and believe GLL’s prospects now can purchase it with a significant margin of safety.
Illiquidity
Ave 30D and 100D volume for 2.2m and 1.6m share respectively. It is noteworthy that it is not an exactly liquid company thus investors who are vested may not be able to enter or exit quickly.
This article was recently published on http://ernestlim15.blogspot.sg/. Readers who are interested should take a look at the company website and the annual report using the links which I have provided above. In addition, readers who are interested can drop me an email at
