GuocoLeisure

GuocoLeisure’s 1QFY16 net profit soared 89.2% y/y to US$31.4m mainly due to a one-off US$13.1m compensation for termination of the Thistle Hotels management contract.

However, revenue dipped 2% to US$115.1m as lower crude oil and gas prices, fall in oil production at Bass Straits, coupled with the weakening AUD against USD, hit its royalty income, which declined 50% to US$6.5m.

Gaming revenue turned around with positive takings of US$2.6m on better gaming drop and win margin, while hotel revenue of US$105.4m (+0.3%) was stable as improved RevPar (+11%) was offset by the weakening of the GBP against the USD.

Overall gross margin was flat at 59.8% (-0.4ppt) as higher gaming duty charges from the increase in gaming revenue that was offset by a weaker GBP.

Bottom line was buttressed by lower financing costs of US$3.2m (-61.4%) as the group had refinanced its mortgage loans with a term loan in Dec ‘14, and the compensation received after the termination of a management contract for 19 Thistle hotels owned by a third party.

While occupancy for the London hotel market is not expected to change significantly, the group cautions that the stronger USD will pressure top line contributions and the planned refurbishments of its hotels could affect its inventory of available rooms before completion by Jun '16. Nonetheless, the group expects to launch its second Amba hotel in 4Q15.

In relation to its oil and gas business, management opines that prices are unlikely to recover in 2016 and will thus continue to be a drag on its royalty income.

The counter is currently trading at 12.3x trailing P/E and 0.7x P/B. The street is bullish on the counter with 3 Buy ratings and a consensus TP of $1.30.