5 January 2016

Small Cap Monthly

  E  F E A  F E

billion&below my2cts

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In our latest feature story, we profile GL Limited. GL is the listed hospitality arm of Quek Leng Chan’s Guoco Group and has one of the largest concentrations of prime hotels in London. An asset rejuvenation/capital recycling story and cheap valuation makes the stock a compelling pick.

Model Portfolio Our holiday season’s pick is GL Limited, which has one of the largest concentration of prime hotels in London.

crown crown jewel

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 Edison Chen, +65 6232 3883 [email protected] Goh Han Peng, +65 6232 3893 [email protected]

See important disclosures at the end of this report

Since the inception of our model portfolio back in September 2015, it has registered a 7.4% return, outperforming the STI index (+3.2%). The best performing stocks within our portfolio is Yoma (+32.9%), followed by China Aviation Oil (+13.6%). In portfolio news, Yoma Strategic is poised to book a large gain from its revised agreement with Axiata on its telecoms tower JV, while Yanlord Group reported another strong month of sales in November that bolstered its 2015 contract sales to a record RMB30bn. Our portfolio also received its maiden dividends from k1 Venture (SGD7,500) which dished out 1.5cts/share prior to a 5-into-1 share consolidation. We are adding 100,000 shares of GL Limited at SGD0.875 apiece. GL is an undervalued play on the London hospitality market with a portfolio of 15 prime hotels in downtown London. On-going asset rejuvenation and operational improvements are driving an earnings upcycle for its core hotel business, while impending non-core assets sale will improve its balance sheet further, with scope for special dividends. We also add 13,000 shares of City Developments at SGD7.65 apiece. CDL is one of the worst performers among the STI component stocks in 2015, but attractive valuations and potential for asset recycling, alongside a growing overseas portfolio, should drive a re-rating of its shares in 2016. To fund our purchases, we are divesting Global Invacom with a small gain (+3.5%).

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billion&below 5 January 2016

Model Portfolio: 

Our portfolio outperformed the market with a decline of 0.4% MoM against a 1.2% drop in the STI and 1.6% slide in FSTS during the last month of the year. Since the inception of our model portfolio in September 2015, it has returned 7.4%, outperforming the STI index (+3.2%). The best performing stocks within our portfolio is Yoma (+32.9%), followed by China Aviation Oil (+13.6%).

Figure 1: Model Portfolio vs STI and FSTS % Change Return Summary Since Purchase

MoM

Portfolio

7.4%

-0.4%

STI

3.2%

-1.2%

FSTS

-0.2%

-1.6%

Source: Bloomberg

Figure 2: Model portfolio return details Price per Share (S$) Stock Name

Cost

Previous

Market Value (S$) Last

Quantity

Cost

% Change

Previous

Last

China Aviation Oil

$

0.625

$

0.715

$

0.710

250,000

$

156,250.00

$

City Development

$

7.650

$

-

$

7.650

13,000

$

99,450.00

$

First Sponsor

$

1.240

$

1.240

$

1.260

75,000

$

93,000.00

$

Guocoleisure

$

0.875

$

-

$

0.875

100,000

$

87,500.00

$

K1 Venture

$

0.960

$

0.990

$

0.925

100,000

$

96,000.00

$

99,000.00

Singapore Shipping

$

0.280

$

0.315

$

0.305

500,000

$

140,000.00

$

157,500.00

Yanlord Land

$

1.040

$

1.040

$

1.005

85,000

$

88,400.00

$

88,400.00

$

Yoma

$

0.350

$

0.475

$

0.465

300,000

$

105,000.00

$

142,500.00

$

-

-

$

144,700.00

Cash (Realised)

-

-

178,750.00 93,000.00 -

-

Total (With realised and unrealised gains since 25 Sep 2015)

Unrealised Profit/ (Loss)

MoM

$

177,500.00

13.6%

-0.7%

$

99,450.00

0.0%

0.0%

$

94,500.00

1.6%

1.6%

$

87,500.00

0.0%

0.0%

$

92,500.00

-3.6%

-6.6%

$

152,500.00

8.9%

-3.2%

85,425.00

-3.4%

-3.4%

139,500.00

32.9%

-2.1%

$ 1,073,575.00

-

-

7.4%

-0.4%

Note: 1. Prices are updated as of 18 Dec 2015. (Cost represent the average cost price; Previous refers to the previous B&B closing price; Last indicate last Friday closing price). 2. "MoM" (Month over Month) refers to the change of this month's price over the last month's price. 3. k1 Venture’s unrealized return does not reflect a 7.5 cent/share capital reduction in Dec 2015 ; Actual total return is +3% if dividends were to take into account.

Source: Bloomberg

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See important disclosures at the end of this report

Yoma Strategic was the top contributor with a 32.9% gain. The stock rose on the back of a successfully-held general th election in Myanmar on the 8 November, in which the NLD party won a landslide victory and gained control of parliament. Yoma offers a pure play on Myanmar and is building up its core businesses in automotive distribution and consumer services to balance its hitherto propertyheavy business. We believe its prospects are positive with a strong management team in place and its first mover advantage to build leading businesses in its chosen fields. The latest partnership agreement with Axiata on its telecoms tower JV will garner a US$19.5m gain for the group, representing a 100% gain on an investment made some 18 months ago. Yoma will remain Axiata’s partner in the telecoms tower JV and retain further upside should the business continue to do well.

2

billion&below 5 January 2016

Figure 3: Portfolio vs STI vs FSTS 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2/10

9/10

16/10

23/10

30/10

6/11

13/11

20/11

27/11

4/12

11/12

18/12

25/12

4/12

11/12

18/12

25/12

-2.0% -4.0% Portfolio

STI

FSTS

Source: Bloomberg, RHB

Figure 4: Portfolio historical performance 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2/10

9/10

16/10

23/10

30/10

6/11

13/11

20/11

27/11

-2.0% WoW

Portfolio

Source: Bloomberg, RHB

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See important disclosures at the end of this report

In other portfolio news, Yanlord Group reported another strong month of sales in November, with contracted sales rising 45.7% yoy to RMB3.8bn. Year-to-date, the group has chalked up contracted sales of RMB26bn (+152%), with an additional RMB6.2bn in subscription sales pending conversion at end 2015. The solid pre-sales achieved to date is way ahead of the earlier RMB18bn sales target that the group had set for 2015. We continue to hold on to k1 Ventures as we expect the company to pay out proceeds received from the divestment of KUE’s educational interests. We are divesting our stake in Global Invacom with a small gain, to fund our latest additions to the portfolio. We are buying 100,000 shares of GL Limited (GL) at SGD0.875 apiece. GL is an undervalued play on the London hospitality market with a portfolio of 15 prime hotels in downtown London. On-going asset rejuvenation and operational improvements are driving an earnings uplift in its core hotel business, while impending non-core assets sale will improve capital allocation and provide scope for special dividends. 3

billion&below 5 January 2016

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See important disclosures at the end of this report

We are also adding 13,000 shares of City Developments at SGD7.65 apiece. The stock has been one of the worst performers among the STI component stocks, with a YTD decline of some 25% largely on account of its exposure to slowing Singapore residential market. CDL has a diverse portfolio, with a solid stream of recurring earnings stemming from its commercial properties and global chain of hotels under the Millennium and Copthorne Group. Recent efforts to recycle capital via securitization deals such as the Profit Participating Securities for the Quayside Collection (S$1.5bn deal value) and its commercial properties (Manulife Centre, 7&9 Tampines Grande and Central Mall) have unlocked substantial capital for the group to re-deploy to grow its global hotel footprints. We think the stock is oversold with multiple catalysts in sight to trigger a re-rating in 2016.

4

billion&below 5 January 2016

my2cts GL Limited (GLL SP) Company background Two prime and two secondary assets. Founded in 1961, GL Limited (formerly known as BIL International and subsequently GuocoLeisure Limited) is the SGXlisted hospitality arm of Guoco Group. Due to its legacy as an investment holding company, GL has a myriad mix of assets: 1) glh, its hotel business where it manages some 15 hotels and 5124 rooms in London under its ownership as well as other hotels on behalf of third parties; 2) a 2.5% royalty on the gross value of all hydrocarbons produced in designated areas of the Bass Straits, 3) property development including 54,000 acres of land in Molokai island, Hawaii as well as some residual real estate in Fiji, 4) Clermont Club, an exclusive casino in Mayfair, London.

Figure 5: Group structure

Source: Company

glh, the hospitality arm A 15-hotel portfolio in London. GL’s hospitality arm, glh, owns a portfolio of 15 hotels in London previously under the Guoman and Thistle brands, with some 5000 rooms in the heart of London. Recently, it has started a rebranding campaign with three new hospitality brands: Clermont, the global luxury hotel and residences brand; Amba, a global four-star hotel brand; and every, a four-star limited-feature category hotel brand, with another two more expected to be launched.

See important disclosures at the end of this report

5

billion&below 5 January 2016

Figure 6: GL’s hotel portfolio in London Hotels Thistle London Heathrow Terminal 5

Locations

No. of rooms

Heathrow Airport, West Drayton

264

Bayswater, London

175

every Hotel Hyde Park (Formerly Thistle Kensington Gardens) Thistle Hyde Park

Lancaster Gate, London

54

The Cumberland

Marble Arch, London

1019

Amba Marble Arch (Formerly Thistle Marble Arch)

Marble Arch, London

692

every Hotel Piccadilly (Formerly Thistle Piccadilly)

Piccadilly, London

82

Trafalgar Square, London

108

The Strand, London

239

Whitehall, London

282

Leith Street, Edinburgh

143

Euston, London

362

Thistle City Barbican

City, London

463

Amba Hotel Tower Bridge (Formerly The Tower)

City, London

801

every Hotel Leicester Square (formerly Thistle's Royal Trafalgar) Amba Hotel Charing Cross (Formerly Thistle Caring Cross) Clermont London (Formerly The Royal Horseguards) Thistle Edinburgh, The King James Thistle Euston

every Hotel Bloomsbury (formerly Thistle's Bloomsbury Park)

Bloomsbury, London

95

Victoria, London

345

Amba Hotel Buckingham Palace Road (Formerly The Grosvenor Hotel, Victoria) Total number of rooms

5124

Source: Company, RHB

Improving the ranking of the London hotels. A large part of glh’s effort has been focused on improving the hotel staying experience for visitors. Due to successful efforts on this front, glh reported in 2015 that all of their London hotels enjoy significant improvement in Tripadvisor rankings, with many of them jumping by more than 100 rankings compared to three years ago.

Figure 7: glh Hotels' change in TripAdvisor 2012 - 2015 Hotels

October 2015

June 2015

Change in ranking

Piccadilly

475

52

+423

Euston

564

208

+356

Trafalgar

368

122

+246

Charing Cross

220

4

+216

Grosvenor

337

153

+184

Hyde Park

386

273

+113

Barbican

708

603

+105

Marble Arch

370

295

+75

Bloombury Park

483

415

+68

Kensington Gardens

306

245

+61

Tower

373

320

+53

Cumberland

454

403

+51

Royal Horseguards

55

56

-1

Source: Company

Launching luxury brand, Clermont. Last year, Clermont, a luxury hotel and private residence brand, was launched and is expected to comprise of 1) Clermont London, the rebranded and refurbished Royal Horseguards Hotel, located near Westminster and overlooking the River Thames 2) Clermont Singapore, part of Tanjong Pagar Centre, Singapore’s tallest building. 3) Clermont Kuala Lumpur, located in Damansara City on a prime freehold site in Damansara Heights. 4) Clermont Residence, luxury residence apartment serviced by adjoining Clermont hotels in Singapore and Kuala Lumpur (200 and 370 apartments respectively).

See important disclosures at the end of this report

6

billion&below 5 January 2016

Figure 8: Clermont hotel/residence details Details

Clermont London

Clermont Singapore

The Royal Horseguards will become ‘Clermont London', after comprehensive renovation, bringing to life its Victorian splendour.

It will form part of the integrated mixed-use development Tanjong Pagar Centre, Singapore's tallest building at 290 metres.

Clermont Kuala Lumpur

Clermont Residences

It will be situated within the iconic The new developments in Singapore Damansara City on a prime freehold and Malaysia will feature luxury site in Damansara Height residential apartments (approximately 200 in Singapore; 370 in Kuala Lumpur) serviced by the adjoining Clermont hotel.

Artist Impressions

Source: Company

Amba, a new 4-star brand. After extensive research, the second hotel brand that GL has launched is Amba, a contemporary 4-star hotel brand. The Amba brand has launched with what was touted as the world’s fastest free unlimited Wifi. Two Amba hotels have already been launched, the Amba Charing Cross in Dec 2014 and more recently in Dec 2015, the Amba Marble Arch.

Figure 9: Amba Hotel Charing Cross

Source: Company

See important disclosures at the end of this report

7

billion&below 5 January 2016

Amba is working. As a reference, the refurbished Amba Hotel Charing Cross is now amongst the Top 5 hotels in London (as on 18th Dec 2015) as ranked on Tripadvisor.com, improving from #220 in 2012. It is also noteworthy that Charing Cross has 239 rooms, more than double the number of rooms of any other hotel in the top 5, showing that it can deliver highly personalised service despite its size. Figure 10: Top 10 hotels in London Ranking Hotel names

No. of rooms

1 Hotel 41

28 rooms

2 Egerton House Hotel

29 rooms

3 The Milestone Hotel

57 rooms

4 Taj 51 Buckingham Gate

86 rooms

5 Amba Hotel Charing Cross

239 rooms

6 The Montague on The Gardens

99 rooms

7 Corinthia Hotel London

294 rooms

8 The Arch London

82 rooms

9 The Nadler Soho

78 rooms

10 The Goring

71 rooms

Source: Tripadvisior Data as of 18 Dec 2015

every, the 3rd new brand. July 2014 saw the launch of every, a limited feature, four star product, targeted at the global quality-conscious business professional and the savvy city explorer. Aiming to address unmet client needs in the 4-star segment, particularly on the technology side, this is glh’s 3rd new brand.

The every brand, limited features category looks to be working as well. The every hotels proposition, a category busting innovation in the sector, offers luxury ‘featured’ bedrooms but without meeting rooms, spas or a plethora of restaurants and bars, usually found in traditional four star hotels. The first every hotel has already opened in Piccadilly in Feb 15, with three more expected to open by Aug 16. Similarly, things appear to be working for every brand with ranking for the Piccadilly property rising from #465 to #35 (10th Dec 2015) on Tripadvisor.

Figure 11: every hotel Piccadilly

Source: Company

See important disclosures at the end of this report

8

billion&below 5 January 2016

Next up, Thistle Express. The next brand that glh announced on in Apr 15 is Thistle Express. Glh is positioning it as a new value hotel concept which will offer modern design, stylish bedrooms, friendly and efficient service, as well as super-fast unlimited free Wi-Fi, at great value. It is scheduled to open in London in 2016 with its target market focused on the savvy, value-conscious traveler.

Upcoming brand will cover spectrum of travelers. Finally, glh has also revealed plans for a limited feature luxury brand to be announced in the coming quarter. With that brand in place, glh has full coverage of the luxury, upper mid, mid spectrum divided into full feature or limited feature (i.e. no meeting rooms, spas etc.).

Figure 12: GL’s spectrum of hotel branding

Source: Company

Optimising its hotel portfolio. glh is also optimizing its hotel portfolio in London. AM:PM Hotel News has reported that glh is looking to sell its 175-bed Thistle Kensington Gardens Hotel in west London with a GBP100m guide price. We estimate the book value at around GBP30m. Proceeds are expected to be reinvested into its Amba brand. The hotel, situated at Bayswater Road hotel, is considered non-core and is being sold free of branding and management. Possibly due to its other hotels nearby, management felt that the return from enhancing the property would not be as high as directly selling the property.

See important disclosures at the end of this report

9

billion&below 5 January 2016

Figure 13: GL’s hotels near Thistle Kensington Gardens

Source: Company

On-going hotel refurbishments will drive capital value growth. To enhance the value of its hotels and drive Revpar growth, GL has rolled out a refurbishment plan across its hotel portfolio. Three hotels have already been refurbished, the new Amba Hotel Charing Cross, Amba Hotel Marble Arch and every Piccadilly. Four hotels are currently scheduled for refurbishment/undergoing refurbishment: 1) Every Bloomsbury (formerly Thistle Bloomsbury Park); 2) Every Leicester Square (formerly Thistle Royal Trafalgar); 3) Clermont London (formerly The Royal Horseguard) and 4) The Cumberland. While the cost of such refurbishment as well as the re-branding initiative will continue to have an impact in 2016, management is taking this measure to improve the overall value proposition of its hotel properties. Figure 14: London hotels that have been refurbished or scheduled to be refurbished

Source: Company, Google Maps

Improving performance for glh. With these new measures, revenue for FY15 remained comparable to FY14 despite the drag on revenue due to rooms taken off from inventory due to the refurbishment programme. Hotel operating profit, however, shot up 46% to USD42.7m in FY15, compared to USD29.2m in FY14. The See important disclosures at the end of this report

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billion&below 5 January 2016

improvement was driven by a combination of efficiency gains and savings from interest expenses.

Figure 15: GL's Hotels segment net profit 45 40 35 30 25 20 15

10 5 0 FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

GL's Hotels segment net profit (USDm) Source: Company

RevPar is growing. In 1QFY16, glh’s Revenue Per Available Room (RevPAR) grew an impressive 11% YoY in constant currency terms, but this was partially offset by a weaker GBP against its reporting currency the USD. Going forward, GL expects its hotel division’s RevPAR to continue growing, though a stronger USD vs GBP would continue to weigh down on hotel revenues in USD terms.

Figure 16: GL's Hotels segment operating profit 70 60 50 40 30

20 10 0 FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

GL's Hotels segment operating profit (USDm) Source: Company

Outlook for UK and London hotels to remain positive. Going forward, the outlook for UK hotels are expected to remain positive. According to PwC, RevPAR forecast for London is expected to hit GBP116.1 in 2015 (+ 2.7%) and GBP121.94 in 2016 (+ 2.3%) while RevPar for UK in general is expected to grow by 4.8% to GBP67.39 in 2015 and 3.5% to GBP70.33 in 2016. Management is confident that GL will beat the industry growth given the momentum in its hotel business.

See important disclosures at the end of this report

11

billion&below 5 January 2016

Figure 17: UK hotels forecast (2014 - 2016F) 140

9% 8%

120

7% 100

6%

80

5%

60

4% 3%

40

2% 20

1%

0

0% 2014

2015F

2016F

2014

2015F

London

2016F

UK RevPAR (GBP) - LHS

YoY growth rate - RHS

Source: PwC

Numerous SGX-listed companies are also making a beeline for London property assets, but GL is already there! Numerous SGD-listed companies have been snapping up commercial properties and hotels in London in recent years and asset prices have been soaring, compressing asset yields. GL is already there and offers a ready-made play with its understated portfolio of hotel assets.

Figure 18: Recent London property transactions by local listed company Company Ho Bee Land

Description Ho Bee Land to acquire a freehold property known as Apollo House and Lunar House, Wellesley Road, Croydon, London.

Investment (GBPm) 99

Ho Bee Land

Ho Bee Land to acquire the office known as 110 Park Street, Mayfair, London W1.

Ho Bee Land

Ho Bee Land to acquire a freehold property known as 39 Victoria Street, London SW1

144

City Developments

City Developments to acquire freehold Stag Brewery land site in Mortlake, within the London Borough of Richmond upon Thames in south-west London.

158

Oxley Holdings

Oxley Holdings to acquire Units 1 – 8 Deanston Wharf, Canning Town, London.

35

Lian Beng Group

Lian Beng Group and JV partners to acquire property at 28-36 Glenthorne Road, London, United Kingdom.

15

Lum Chang Holdings

Lum Chang to acquire freehold commercial property located at First Way, Wembley HA9 0JD, London.

26

Lum Chang Holdings

Lum Chang to acquire 35,343,685 units in 130 Wood Street Trust. The Unit Trust only asset is a freehold commercial property, 130 Wood Street, located at 130 to 133 Cheapside, 1, 2, and 2a Gutter Lane and 128 to 130 Wood Street, London EC2V.

51

46

Source: Companies, RHB

Bass Straits royalty 2.5% royalty on oil and gas revenue in Australia’s Bass Straits. GLL’s other key asset is a 55% entitlement to the Weeks Royalty, which entitled it to a 2.5% royalty granted by BHP/ExxonMobil on the gross value of all hydrocarbons produced and recovered in designated areas within the Bass Straits of Australia. This royalty has been providing the group with average annual royalty income of USD42.4m (past six years) and the area is expected to have reserves lasting at least another 25 years.

See important disclosures at the end of this report

12

billion&below 5 January 2016

Figure 19: GL's Oil & Gas segment revenue 60 50 40 30 20 10 0 FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

GL's Oil & Gas segment revenue (USDm) Source: Company

Global oil decline will have negative impact. However, the significant decline in global oil prices has negatively impacted its cash flows. In FY15, royalties dipped to USD31.7m due to the oil price decline, a weaker AUD as well as industrial action faced by the producers at the Gippsland Basin joint venture which disrupted production. Based on our house oil price estimates of USD50/barrel for next year and USD60/barrel in the long term, we expect royalties to drop to USD15m for FY16 before rebounding to USD25m per annum in FY18.

Property development and Gaming 55,000 acres of land in Molokai, Hawaii. GLL also participates in property development in the U.S. It owns 55,575 acres of land on the island of Molokai in Hawaii as well as property in Fiji. GLL had made several attempts to undertake property development in Molokai but encountered resistance from natives who want to preserve the natural state of the environment there. However, the group remains positive about the value of its landbank and has transacted several parcels of its land at prices well above book value in the past. GL’s Molokai property has a book value of USD177m. As a reference, a nearby island of 89,600acres was sold to Oracle’s Larry Ellison for a reported USD500-600m.

Figure 20: Molokai, Hawaii

Source: PwC

Developing Molokai with an intent for sale. In Molokai, the company focuses on 4 key areas to develop the island: animal husbandry, green energy, property development and farm lease. The company reported good progress on animal husbandry in Molokai and begun to supply grass fed beef to the Hawaiian market in FY15. See important disclosures at the end of this report

13

billion&below 5 January 2016

Working towards exiting Fiji. Other than Molokai, GLL also owns the Denarau Island Resort and Port Denarau Retail Commercial Centre in Fiji. However, GLL does not intend to hold its Fiji property for long and is currently working towards an eventual exit.

Disposal will help lift bottom line. The other asset that is intended for sale is the Clermont Leisure, which operates the Clermont Club in Mayfair, London. Management is prioritizing the disposal of this asset as the division had been incurring losses for the past 2 years (pretax loss of USD7.2m in FY15 and USD3m in FY14). We expect the disposal and monetization of its asset to improve the group’s financial metrics and allow investors to value the group’s core hotel business more appropriately. Figure 21: The Clermont Club

Source: The Clermont Club

GL Financials Interest savings of USD15-20m. The group refinanced its GBP138 million high 10.75% interest debenture stock in December 2014 with a floating rate term loan. Based on prevailing benchmark rates, this should equate to around 4% and this is expected to result in overall interest cost savings of around USD15-20m for the group. 1QFY16 alone saw a sizeable QoQ reduction in finance costs from USD8.3 million to USD3.2 million.

Share options align management interest with shareholders. With Michael DeNoma (CEO) holding 25m share options, the interest of GL’s management should be strongly aligned with those of its shareholders (another 47.4m options were granted to other employees). Upon achieving their performance targets, the first tranche of up to 35% will be vested at the end of FY15/16, and the second tranche of up to 65% at the end of FY18/19. Currently, as GLL has acquired 68m shares to provide for those options and dilution is unlikely to be a concern. The options are exercisable at SGD0.86, providing a kind of floor for the share price. Also noteworthy is the regular purchases of stock by chairman Quek Leng Chan, who in December alone acquired some 435,000 shares via his holding company Guoco Group.

See important disclosures at the end of this report

14

billion&below 5 January 2016

Figure 22: Details of options granted to Mike DeNoma The options granted on to Mike DeNoma are valid from 13 May 2013 and will vest in two tranches: • the first tranche of up to 35% will vest at the end of the financial year ending 30 June 2016 upon the achievement of the applicable performance targets; and • the second tranche of up to 65% will vest within three months of the end of the financial year ending 30 June 2019 upon the achievement of the applicable performance targets. Each tranche, once vested, is exercisable as follows: • 40% of that tranche is exercisable within 6 months from vesting date; • 40% of that tranche is exercisable from the commencement of the 13th month to the end of the 18th month from vesting date; and • 20% of that tranche is exercisable from the commencement of the 25th month to the end of the 30th month from vesting date. Source: Company

Figure 23: Quek Leng Chan's recent GL share purchase Date of acquisition

Number of shares

Price per share (SGD)

11-Dec-15

215,600

0.83581

15-Dec-15

220,000

0.83432

Source: Company

A Valuation Perspective Hospitality and oil & gas assets are prime amongst four businesses. GL owns a portfolio of rare cash-generative assets that appear to be massively under-valued visà-vis private market prices. Its prime assets are the Bass Straits Royalty Trust and glh hotels which generate a combined FY15 revenue of USD416m.

Figure 24: GL historical revenue (FY2010 - FY2015) 500 450 400 350

300 250 200 150 100

50 0 FY2010

FY2011

FY2012

FY2013

FY2014

Hotels segment revenue (USDm)

Oil and Gas segment revenue (USDm)

Property Development segment revenue (USDm)

Gaming segment revenue (USDm)

FY2015

Source: Company

5,124 rooms across London. GL’s crown jewel is glh, its hotel arm. Comprising of 15 hotels and over 5124 rooms that it owns, manages and operates, GL has ownership or long-term leasehold interests in 5,124 rooms across 15 hotels in some of London’s prime districts in Knightsbridge, Mayfair and Kensington.

Transacted average of EUR374,369 per key. According to hotel consultancy firm HVS, the UK market saw transaction volume of EUR2.5bn in 2014, a remarkable increase from EUR1.4bn in 2012. London itself accounted for EUR1.5bn or 60% of the UK transactions with an average key price of EUR310, 000 in 2014. The sale of Marriott Hotel Grosvenor Square for EUR151m or EUR638, 000 per key should lend some idea to the value of prime hotels in London.

See important disclosures at the end of this report

15

billion&below 5 January 2016

Hotel portfolio worth SGD2.64bn. Recent hotel transactions in the London area yielded an average of EUR374,369 per key. Using this valuation benchmark across its 5124 rooms in London, GL’s hotel portfolio would be worth a staggering EUR1.7bn or SGD2.9bn. (1SGD:1.53EUR). We believe this estimate is conservative. Its 175room Thistle Kensington Gardens Hotel, for instance, is marked for sale at a GBP100m guide price, translating to EUR782,778/key.

Figure 25: 2014 & 2015 hotel transaction Country

Location

Rooms

Price (€)

Pan Pacific Heron Plaza (site)

UK

London

190

122,200,000

Price per Room (€) 643,000

Hub by Premier Inn Brick Lane

UK

London

189

43,600,000

230,000

Marriott Hotel Grosvenor Square

UK

London

237

151,200,000

638,000

Travelodge Uxbridge

UK

London

120

16,400,000

137,000

Enterprise Hotel

UK

London

100

30,300,000

303,000

Urban Villa at Great West Quarter

UK

London

100

18,900,000

189,000

Pembridge Palace Hotel

UK

London

120

31,300,000

261,000

Sherton Skyline Hotel & Conference Centre

UK

London

350

Undisclosed

Undisclosed

Wyndham Grand London Chelsea Harbour

UK

London

158

78,700,000

498,000

Preimer Inn London Croydon Town Centre Hotel

UK

London

168

18,700,000

111,000

Hilton London Docklands Riverside

UK

London

378

Undisclosed

Undisclosed

Park Lane Hotel

UK

London

303

Undisclosed

Undisclosed

Travelodge London Enfield Hotel

UK

London

132

12,300,000

93,000

Hyde Park Hotel

UK

London

68

32,300,000

474,000

Travelodge Stratford

UK

London

180

23,500,000

131,000

Travelodge Chessington Tolworth

UK

London

132

10,900,000

83,000

Cannizaro House Hotel

UK

London

46

Undisclosed

Undisclosed

Bermondsey Square Hotel

UK

London

80

Undisclosed

Undisclosed

Kingsway Hall Hotel

UK

London

170

Undisclosed

Undisclosed

London EDITION

UK

London

173

Undisclosed

Undisclosed

Holiday Inn Express Earls Court (50% interest)

UK

London

150

19,900,000

132,000

NH Harrington Hall Hotel

UK

London

200

112,000,000

56,000

Umi London

UK

London

116

36,400,000

314,000

Parkcity Hotel

UK

London

62

77,000,000

1,200,000

Park Inn by Radisson Hotel & Conference Centre London Heathrow

UK

London

895

88,700,000

99,000

Savoy Hotel (50% stake)

UK

London

195

Undisclosed

Undisclosed

Regency Hotel

UK

London

203

100,000,000

684,729

Ace Hotel

UK

London

258

150,000,000

808,139

St Ermin's Hotel

UK

London

331

185,000,000

776,888

Property

Average Price per Room (€)

374,369

Source: HVS, CBRE

Bass straits worth SGD298.1m. To calculate the value of Bass Straits royalty, we apply a DCF methodology with a 25-year lifespan on the asset, a WACC of 10%, USD15m cash inflow for FY16, USD20m cash inflow for FY17 and USD25m cash inflow for FY18 and our house view of sustainable long term oil price around the USD60/barrel from 2019 onwards, deriving a value of SGD298m. (1USD: 1.41SGD).

SOTP of SGD2.46/share and Target Price at SGD1.85. Valuing its secondary assets at book value, a further SGD318.8m is added. After deducting group net debts, our overall SOTP valuation is SGD2.97bn and SOTP per share is SGD2.46. Applying a holding company discount of 30%, we derive a TP for the stock at SGD1.72/share, representing an upside of 97% from current levels.

See important disclosures at the end of this report

16

billion&below 5 January 2016

Figure 26: SOTP Valuation Components

SGDm

Hotel valuations*

2,935.0

Brass Straits concession's NPV

298.1

Molokai properties***

254.4

Clermont Leisure Casino*** Less: Group net debts***

64.4 (354.2)

SOTP valuation

3,197.6

Weighted number of shares (m)

1,299.8

RNAV/share

2.46

less: 30% holding company discount

(0.74)

Target price

1.72

Current share price (SGD)

0.875

Upside (%)

97%

Source: Company, RHB Exchange rate: 1EUR:1.53SGD, 1USD:1.41SGD *Total of 5124 rooms at EUR336,932 per room (10% discount to recent average transaction). ** Assuming USD20-30m royalty income per year till 2039 (based on our house long term estimates of USD60 per barrel, WACC:10%).

See important disclosures at the end of this report

17

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