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GL Limited - CIMB Research 2015-12-09: Hotel refurbishment bearing fruit

GL Limited - CIMB Research 2015-12-09: Hotel refurbishment bearing fruit GUOCOLEISURE LIMITED B16.SI 

GL Limited - Hotel refurbishment bearing fruit 

  • GL’s UK hotels continue to benefit from improving economic and travel backdrop. 
  • We expect high-single-digit RevPar growth for GL in FY16-17, driven by the refurbishment and rebranding programme for the group’s 15 London hotels. 
  • The new Value Centre General Managers (VCGM) model adopted by management is expected to enhance hotel operating efficiency. 
  • Management plans to continue evaluating opportunities for monetisation of the group’s non-core businesses. 
  • Maintain Add with target price of S$1.26, based on 25% discount to CY16 RNAV. 


■ Buoyant market dynamics for London hospitality sector in 2016 

  • The market dynamics for the London hospitality sector are likely to remain buoyant in 2016, backed by the UK’s improving economic and travel backdrop. PwC forecasts that London hotel occupancy rate will improve by 1% yoy in 2015 and 0.3% in 2016 to 84% in 2016, topping all other major European tourist destinations. PwC also expects London hotel RevPar to expand by 2.7% yoy in 2015 and 2.3% yoy in 2016. 

■ Upbeat hotel RevPar growth in FY16-17, driven by refurbishment 

  • We expect GL’s high-single-digit hotel RevPar growth to beat the market in FY16-17, driven by the group’s ongoing refurbishment and rebranding programme. 
  • FY16 is likely to be an earnings sweet spot for the hotel segment, given the full-year income contribution from the refurbished and rebranded Amba Hotel Charing Cross (239 rooms) and Every Piccadilly (82 rooms), as well as the contribution from Amba Hotel Marble Arch (692 rooms) that is due to start in 2QFY16. 

■ VCGM model to improve hotel operating efficiency 

  • Management is attacking the conventional hotel investment and management business with a new Value Centre General Managers (VCGM) model. 
  • Unlike the large hotel chains that have centralised decision making, GL advocates decentralisation. 
  • The VCGM model allows for better employment of data science to improve yield control and enhance guest experience. The VCGM model has yielded positive results to date, evidenced by the 3% yoy decline in 1QFY16 hotel operating expenses. 

■ Potential monetisation of non-core businesses 

  • Management intends to continue evaluating opportunities for monetisation of the group’s non-core assets, including the Clermont Club (the only casino owned by GL), Molokai property development, Bass Strait Oil and gas royalty income. 
  • Except for the Bass Strait business (profit-making but adversely affected by low global oil prices), GL’s non-core businesses (casino and property development) have been loss-making or barely breaking even. 
  • Potential monetisation would strengthen GL’s balance sheet. 

■ Maintain Add, with target price of S$1.26 

  • We keep our Add rating on GL, with a target price of S$1.26, based on a 25% discount to CY16 RNAV. 
  • Potential re-rating catalysts include organic earnings growth in the core hotel business, new management contract wins and monetisation of non-core assets. 
  • Key risks include possible unrest due to Islamic State of Iraq and Syria (ISIS) terrorism and a weak Euro (makes London a more expensive tourist destination).


Roy CHEN CIMB Securities | William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.26 Same 1.26


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