GL Limited - CIMB Research 2016-05-15: An exceptionally weak 3Q

GUOCOLEISURE LIMITED B16.SI

GL Limited - An exceptionally weak 3Q

Seasonality aside, GL’s 3Q16 results were weaker than expected, with core net loss of S$1.0m. 9M16 core net profit formed 69% of our FY6/16 forecast.
Hotel earnings were negatively affected by weak tourism sentiment in London due to the Paris terror attack in Nov 15 and adverse FX translation from the weaker £.
O&G royalty income was negatively affected by the low crude oil price and workers’ strike at the Bass Strait oil production field that lasted for over one month.
Maintain Add, with a lower target price of S$1.18 (25% discount to CY16 RNAV).

Reported net profit fell 21% yoy to US$3.5m in 3Q16 (3Q15: US$4.4m), on the back of 14% yoy decline in revenue.
Excluding the one-off reversal in tax provision of c.US$5m, GL would have incurred slight core net loss of c.US$1m in 3Q16.
While we note that 3Q is the seasonally-weakest quarter, we deem GL’s 3Q16 core performance a miss, as we expected slight core net profit.

Hotel revenue fell 12% yoy to US$68m in 3Q16 (3Q15: US$77m) due to adverse FX translation (£ depreciated 6-7% yoy against the US$ during the quarter) and a yoy drop in room occupancy, as tourism sentiment in London was negatively affected by the Paris terror attack in Nov.
We expect moderate recovery in hotel room occupancy in 4Q, which is a seasonally-strong quarter.
We forecast that hotel EBITDA for FY16 will be largely flat.

Oil & gas (O&G) royalty income fell 32% yoy to US$3.8m in 3Q16 (3Q15: US$5.6m), due to the significantly lower oil price yoy and a month-long workers’ strike at the Bass Strait oil production field.
We believe that the group’s O&G royalty income will not deteriorate further going forward, given that the Bass Strait oil field has resumed full production and crude oil price appears to have stablised at the US$40-50/barrel level.

While the potential disposal of the group’s non-core assets, including the Molokai property and London casino, would be a key re-rating catalyst for the stock, we understand that progress has been very slow.
Management said GL’s near-term focus remains improving hotel operations through refurbishment and rebranding.
As for the non-core businesses (incurred small losses in 3Q), the near-term target is to achieve breakeven and lessen their drag on the group’s overall earnings performance.

We lower our FY16-18F EPS forecasts by 3-9%, to reflect the negative impact from the FX translation.
We are optimistic of recovery in GL’s hotel performance going forward, as we believe that the terror threat is only a short-term hiccup.
London is a long-loved tourist destination for its cultural, sporting and historical attractions and a weak £ should spur tourism interest in the medium term.

Roy CHEN CIMB Securities | William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2016-05-15

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.18 Down 1.26