GUOCOLEISURE: $1.43 target, 20% discount to sum of parts

GuocoLeisure's Royal Horseguards Hotel: Overlooking the River Thames in the heart of London. Photo: Internet
Excerpts from analyst's report

RHB Research analyst: Goh Han Peng (left)

We hosted GuocoLeisure Ltd (GLL SP) to a non-deal roadshow last week. Mike Denoma, the group’s CEO, emphasized the group’s focus on its hotel business and the company’s unique position as one of the largest operators in London with its 5000-room inventory.

Since coming on board GLL one and a half years ago, Mike Denoma had implemented an overhaul and revamp of the group’s hotels, including the introduction of new brands, decentralising decision-making to the hotel level, asset enhancement across the group’s flagship properties and driving down central administrative costs.

These efforts had resulted in a 61% improvement in hotel operating profit to US$28.8m in 1HFY15 despite the impact of substantial rooms taken out of inventory due to the hotel refurbishment program.

Among the two hotels that the company had rebranded and refurbished, the rankings in Tripadvisor’s top London hotels had climbed from 220th to number 4 in the case of Charing Cross and 475th to 52th in the case of Piccadilly.

The refurbishment of the 670-room Marble Arch is expected to be completed in October 2015 while the group is exploring development options for the 800-room Tower hotel.

Coupled with the interest savings from the refinancing of its mortgage debentures, we expect the earnings momentum for the group to be strong and sustained over the next 2 years. GLL is also focused on divesting its Clermont Club casino operation, which has been a drag on the group in the last half year.

The group is also reviewing options to divest its property in Molokai Island, which currently has a book value of US$177m.

Overall, we expect the group to report a better set of FY15 results, with further improvement in FY16 due to the on-going improvement in the hotel business.

We continue to maintain our BUY recommendation on the stock with a $1.43 TP, premised on a 20% discount to our sum-of-parts valuation for the stock.