Guocoleisure

Guocoleisure: NextInsight note that as Mr Quek Leng Chan has offered to take Guoco Group Limited, private. Such an exercise will involve an independent financial adviser which has to evaluate whether the offer by Mr Quek is fair. Expect the financial adviser would have to do a valuation of Guoco Group’s assets in order to be able to assess the attractiveness of the offer by Mr Quek. If this were the case, it is likely that Guocoleisure, being part of Guoco Group, 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 operates under two hotel brands namely Guoman and Thistle brands. These hotels are valued at US$1.2b in GLL books as of 31 Dec12. With their portfolio of assets (refer to the 2012 annual report), 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 Wks Royalty refers to a 2.5% overriding royalty relating to all hydrocarbons produced by BHP Billiton from designated areas in the Bass Strait, Australia, granted by BHP. According to Esso’s estimates, the estimated reserves for these designated areas are likely to last approximately another three decades. For the last 5 yrs, 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, which is likely to be undervalued. nNote that GLL trades at 0.68x P/BV (NAV / share: $1.075) with a historical div yield of 2.7%.