Guocoleisure – potential chart breakout amid interesting developments (Written 26 May 2015)

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Since 5 Jan 2015, Guocoleisure has been trading within a range of $0.910 – 0.980. With reference to Chart 1 below, Guocoleisure’s exponential moving averages (“EMAs”) seem to have formed golden crosses. ADX has also risen from the low of 11.2 on 9 Apr 2015 to 28.9 on 26 May 2015. This signifies that the trend seems to be strengthening. Price action also seems bullish.Barring unforeseen circumstances, there is an increasingly high likelihood that it may stage an upside breakout from its four month plus trading range of $0.910 – 0.980 in the next couple of months. Measured eventual technical target is S$1.050. Guocoleisure closed at $0.960. Day range was $0.955 – 0.960.Supports:
0.955 / 0.935 – 0.945

Resistances:
0.970 / 0.980 / 1.00

Chart 1 – Range trade since 5 Jan 2015

Source: CIMB chart as of 26 May 15Some noteworthy events

Strong committed management with solid reputation

Michael Denoma was first appointed as CEO of Guocoleisure’s hotel business in 2012 and was promoted to Group CEO in 2014. Denoma has an excellent track record and is best known for his role in Standard Chartered’s global consumer bank. In his 10 year stint at Standard Chartered, he grew their customer base from five million to 14 million and the division’s revenue by S$4b. He also “globalised” Standard Chartered’s consumer business across Africa, Asia and the Middle East. Denoma’s plan is to bring Guocoleisure to the same level as major international hotel chains such as Hilton Worldwide and Starwood Hotels and Resorts Worldwide.|

According to Lim & Tan, Denoma and his team have around 75m share options at an exercise price of 86 cents, thus it is likely that the management’s interests and shareholders are rather aligned.

Significant interest savings

Guocoleisure has refinanced its GBP138m 10.75% mortgage debenture to below 4% in Dec 2014. According to management, this will result in an annual cost savings of around US$14m per year. Such annual interest cost savings are substantial, especially if they were to be compared against FY14’s group profit of US$39m.

Sale of non core assets

According to Guocoleisure’s FY2014 annual report, management indicated that they are looking to exit non core business such as their real estate interests in Fiji. Lim & Tan postulated that Guocoleisure may sell other non-core assets such as Molokai Island and The Casino biz which are loss making

Recent share purchase by Mr Quek Leng Chan – A positive sign

After the close of trade today, Guocoleisure announced that Mr Quek Leng Chan has started buying back 132.6K Guocoleisure shares @$0.94952 on 21 May. He last bought 667K Guocoleisure shares @$0.64875 on 18 Oct 2012. In my opinion, this is a positive and significant sign and should (likely) cap any potential downside in the near term. Based on my own observation, I believe there is a chance that Mr Quek may continue to accumulate some more shares. Mr Quek has 66.7% interest in Guocoleisure after his purchase on 21 May.

Guocoleisure plans to update the investment community in June

Guocoleisure is planning to do a corporate presentation (likely) in June 2015 to update the investment community. It will be interesting to observe the matters discussed in the corporate presentation.

Valuation

According to Figure 2 below, analysts’ target prices for Guocoleisure range from S$1.18 to S$1.43. Its NAV / share is approximately around S$1.120 but according to the analysts, Guocoleisure’s RNAV can be as high as S$1.80.

Figure 2: Analysts’ target price for Guocoleisure

 

Source: CIMB chart as of 26 May 15Conclusion

The above is a brief writeup on Guocoleisure with the emphasis more on its technical chart and its recent interesting developments. Readers who are keen to know more on Guocoleisure should refer to Guocoleisure’s financial statements. You can email me at crclk@yahoo.com.sg for the analyst reports.

P.S: I have sent out a short writeup on Guocoleisure to my clients on 7 May and 13 May to inform them of Guocoleisure’s recent developments.

Disclaimer

The information contained herein is the writer’s personal opinion and provided to you for information only, and is not intended to, or nor will it create/induce the creation of any binding legal relations. The information or opinions provided herein do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or invest in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein are suitable for you. The writer will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials appended herein. The information and/or materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.

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