UOL / Pan Pacific Group Hotels

UOL / Pan Pacific Group Hotels: UOL reported 1Q13 results, which saw net profit -15% YoY to S$71.7m mostly due to a weak contribution from its hotel segment, although weaker top-line would be generally within expectations and is tracking marginally below due to lumpy progress recognition at development projects. Attention however would be on group’s delisiting proposal of Pan Pacific Hotels Group (PPHG), where UOL is offering $2.55 / share for the delisting proposal for PPHG. The price reflects an 8.97% premium over PPHG's last transacted price of $2.34 and is above the 12-mth high at $2.54. However, it is below PPHG's $2.64 NAV / share (FY12), which took into account valuations of its hospitality assets. Grp's CFO note that given PPHG's low trading liquidity, UOL's exit offer will be a good opportunity for minority shareholders to realise their investments. At the same time, UOL will benefit from savings in compliance costs, as PPHG has hardly tapped capital markets the past two decades. The privatization and delisting of PPHG will allow greater flexibility in managing and optimizing the two companies' hospitality business. The grp note however that setting up a hospitality real estate investment trust (Reit) is not on the cards for the moment. When queried about the possibility of a privatization for UIC, in which UOL has a stake of 43% + stake, UOL note that it does not foresee that at this point in time. As for UIC's subsidiary Singapore Land, UOL note that the as grp does not own any shares in SingLand, the decision lies with major shareholder UIC to consider. Nomura maintains that a potential RNAV of PPHG assets would place its RNAV at $2.82 instead vs the current NAV of $2.54 and believe the market is likely to view a successful privatization of Pan Pac as a positive outcome for UOL.