The screen shot below describes GLL’s various business segments. (Please refer to the company website http://www.guocoleisure.com/corpstruc.html for the various business segments as I am unable to attach it here.)

According to GLL’s annual report 2012, GLL has 8,911 rooms with 8,280 rooms in UK with the balance in Malaysia. Out of the 8,280 rooms in UK, 5,110 rooms are in London. 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 http://www.guocoleisure.com/uploads/annual.reports/GuocoLeisure%20AR%202012.pdf), 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.

For the last 5 years, GLL has been receiving a steady stream of cashflows of around US$39-54m p.a. 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.

Source: GLL annual
reports (2008-2012)

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.

Mr Quek Leng Chan has offered to take Guoco Group Limited private. Such exercise will involve an independent financial adviser which has to evaluate whether the offer by Mr Quek Leng Chan is fair. I would guess that 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 Leng Chan. 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.

GLL trades at 0.68x P/BV (NAV / share: $1.075) with a historical dividend yield of 2.7%. Valuations seem to be rather decent.

Within two months, Mr Quek Leng Chan 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.

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.

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 is just an introduction to GLL. For readers who are interested, they 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 crclk@yahoo.com.sg where I can send them two unrated analyst reports on GLL.

Disclaimer

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