Guocoleisure - Key takeaways from NDR

During the NDR we hosted for GuocoLeisure (GLL) in Singapore on 18 Jun, Mike DeNoma, the Group CEO, provided an update on the group’s recent developments and shared how GLH (the hotel arm of GLL) would disrupt the conventional hotel management industry with its innovative Value Centre General Manager (VCGM) model. We are upbeat about these corporate developments and GLH’s business outlook. Our FY15-17 core EPS estimates are maintained. 

We reiterate our Add rating on GLL with an unchanged target price of S$1.18, based on a 25% discount to CY15 RNAV. Key re-rating catalysts include organic earnings growth in the core hotel business, new management contract wins and potential monetisation of its non-core assets.

What Happened
Key takeaways from the NDR are: 

1) GLH is attacking the conventional hotel investment and management business with a new VCGM model. Unlike large hotel chains that have centralised decision making, GLL emphasises on decentralisation. The VCGM model allows better employment of data science for yield control and guest experience enhancement. 

2) Management has a global vision for GLH and sees the 15 London hotels as trophy assets and would leverage its proven track record on these assets for future contract wins. Though currently it is still focusing on hotel refurbishment and efficiency enhancement, the management believes that GLH would be ready to reach out for management contracts by Jun 16. 

3) GLL would continue to explore options for its non-core assets (mainly the Clermont casino and property in Molokai). Management sees no imperative for disposing the assets at a discounted price, given their passive investment nature and GLL’s well covered capital needs.

What We Think
We are upbeat about the ongoing developments at GLL. We believe FY16 could be an earnings sweet spot for the group’s hotel business with the Hotel Marble Arch (a major 692-room hotel) added back to the room inventory under the Amba brand. In addition, the improved TripAdvisor rankings (see overleaf) across GLH’s 15 London assets are also encouraging for the prospective hotel performance.


Technical Analysis
Daily Chart
What You Should Do
We reiterate our Add call on GLL with an unchanged target price of S$1.18. GLL is trading at a discount of 37% to RNAV of S$1.57. With the potential outperformance in hotel earnings, we believe there is scope for further upside revaluation. (Read Report)

Read Related Report
Idea Of The Day - Guocoleisure
Friday, 19 June 2015
- CIMB Research

Source : CIMB Research

Labels: ,