GL, formerly known as Guocoleisure, looks interesting after the recent share price decline and the aggressive *6.4m share purchase between $0.830 – 0.858 done by Mr Quek Leng Chan in Jan 2016. It has traded within a range of $0.830 – 0.940 for the past 4 months. Based on Bloomberg, the average analyst target and estimated div yield are $1.260 and 2.7% respectively.

 

Some noteworthy points

1. FY16F likely to be stronger than FY15

FY16F is likely to be stronger vis-à-vis FY15 because

a) Refurbished hotels such as Amba Hotel Charing Cross (239 rooms) and the Every Hotel Piccadilly (82 rooms) progressively launched in FY15 are expected to contribute fully in FY16;

b) Amba Hotel Marble Arch (692 rooms) slated to launch in Nov 2015 would likely contribute positively in FY16F and (likely) more in FY17F;

c) 50K room nights were taken out in FY15 for refurbishment but about 25K were expected in FY16F only.

2QFY16F results is likely to be out in mid Feb. For 1QFY16, profit before tax jumped 17% to US$24.7m after excluding US$13.1m one off compensation from the cessation of 19 managed hotels. Although past results do not necessarily guarantee future performance, it may nonetheless be a good indicator of future performance.

 

2. Divestment of non-core assets

According to GL’s announcement on 27 Nov 2015, it has appointed Jones Lang LaSalle to assist with the sale of Thistle Kensington Gardens Hotel. Discussions with potential buyers are ongoing. If this materialises, GL is likely to recognise a significant gain from the sale. It is noteworthy that GL has other assets such as the Molokai island in Hawaii which may also be put up for sale if the opportunity arises.

 

3. Dividend raised 10% to 2.2 cents in FY15

GL has been giving dividends amounting to 2.0 cents per year (FY ends in June) from FY11 to FY14 and raised it by 10% to 2.2 cents in FY15. This underscores management’s confidence in the group’s future performance.

 

4. Aggressive *6.4m shares buy back by Mr Quek Leng Chan in Jan 2016

Mr Quek has been buying shares in GL for the past few years. However, he is especially aggressive in Jan 2016 with a purchase of approximate *6.4m shares between $0.830 – 0.858. My personal takeaway from Mr Quek’s aggressive purchase is likely that Mr Quek feels GL is significantly undervalued at $0.830 – 0.858.

 

5. Attractive valuations

Based on Shareinvestor, GL’s NAV / share is around S$1.25 and according to analyst reports from CIMB and Lim & Tan, RNAV may range from $1.58 to $1.71. It is noteworthy that Mr Quek tried to privatise GL at $1.25 per share in 2005 but failed.

 

Risks

1. FX risks from GBP against USD;

2. Volatility created by its non-core segments such as

a) Decline in oil and gas royalty due to weaker oil prices and sliding AUD against US$;

b) Clemont Club, GL’s only casino, traditionally has volatile performance. It posted an operating loss of US$0.5m in 1QFY16 vs US$3.8m in 1QFY15.

 

Chart analysis

With reference to Chart 1 below, GL has been entrenched in a downtrend since 8 Jun 2015. However, most of its exponential moving averages (“EMAs”) have halted their decline and 21D EMA seems to be inching up. GL has to breach the formidable resistance of $0.870 – 0.900 with volume expansion and on a sustained basis, in order to negate the bearish tinge in the chart. A sustained break below the critical support $0.820 – 0.830 is likely to be bearish.

Chart 1: GL – downtrend since Jun 2015

Source: CIMB chart as of 3 Feb 16

 

Conclusion

In conclusion, GL looks interesting after the recent share price decline and the aggressive *6.4m share purchase between $0.830 – 0.858 done by Mr Quek Leng Chan in Jan 2016. We can look towards the release of its 2QFY16F results to see whether its hotel segment can continue to outperform and offset the possible weakness in the oil and gas segment. Readers have to bear in mind the potential risks and it is good to refer to the various analyst reports for more information on GL.

As mentioned previously, readers who wish to be notified of my write-ups and / or informative emails, they can consider to sign up at http://ernest15percent.com so as to be included in my mailing list. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails and more details) to my clients first. For readers who wish to enquire on being my client, they can consider to leave their contacts here http://ernest15percent.com/index.php/about-me/

 

P.S: I have sent the above write-up to my clients yesterday morning.

*The share purchase is manually calculated by me and may be subject to errors. Readers are advised to calculate themselves based on the string of SGX announcements listed on SGX. 

 

Disclaimer

Please refer to the disclaimer here