StockPick

Background

I received the fllwg email fm my Philips broker on 27-Jun,

SINGAPORE (XFN-ASIA) - BNP Paribas said it has an "overweight" rating for the hotel and leisure sector here, as it is expected to benefit from increased tourist arrivals this year. "Latest tourism data showed visitor arrivals were up 8.1 pct year-on-year in the first five months of 2005, with room rates up 10.6 pct on average. Expect stronger numbers for the remaining months of 2005," BNP analyst Vincent Yek said in a note. Yek said that the current prices of stocks like City Developments Ltd, CapitaLand and Ascott Group have not fully factored-in expectations of further improvement in hotel room rates, occupancy levels and revenue per available room (RevPAR). "We should see values for hotels improving over the next three years as earnings pick up," he said.

Yek said that Raffles Holdings Ltd remains his top pick in the sector, and that he has raised its target price to 0.93 sgd from 0.81 sgd. "Based on our own market survey, the 4-star and 5-star hotels' RevPAR improved faster than average industry RevPAR. Raffles Holdings owns mainly 5-star hotels and should see revenue improve faster than industry average for first half 2005," Yek said.

At 11.11 am, Raffles Holdings was down 0.015 sgd at 0.665, Capitaland was down 0.02 at 2.34, City Developments was down 0.15 at 7.70 and Ascott was down 0.005 at 0.46.

I have Raffles Hldgs stocks since IPO in Dec-99 @ $0.85 and a subsequent buy @ $0.76. With the capital reduction exercise of $0.18 last year, my average cost is $0.625. I thot' I was underwater till I checked and found out that I have not factored in the capital reduction of last year :D

The purpose of this study is thus to decide whether to hold and even build up my holdings or to get rid of it entirely.

Financial Data

All the data in this case study are extracted fm the Raffles Hldgs 2004 Annual Report. Some of the figures in the fllwg table are extracted fm the periodical "Shares Investment",

Note : Capital Reduction $375Mil ($0.18/shr) on May-04

Issued Shares = 2,085,980,852 @ $0.32 par

Substantial Hldgs :

• Capitaland 59.89%
• OCBC 7.81%
• DBS 3.24%
• Free Float 27.94%

Highlights

• Business : Hotels & Resorts (99.8%)
• NAV = $0.78 (14.7% discount) vs Share Price $0.67 (8-Jul)
• PE 23.3, Yield 3.0% @ $0.67 (8-Jul)

Comments

• Improving Turnover, EPS & ROE fm 2002-04
• Debts increased & Cash reduced due to capital reduction in 2004
• Total debts $367Mil still lower than HPL ($513Mil)
• Cash + S/T Investments $127Mil also higher than HPL ($67Mil)
• ROE ave ~3% for last 3 yrs does appear low but still higher than HPL (1.5% ave)
• Margin ave ~15% for last 3yrs higher than HPL (8-9% ave)
• EPS ave 2.5cts for last 3 yrs lower than HPL (3.5cts ave) but due to 4x as many shares
• NAV at much lower discount of 14.7% vs HPL 38.6%

Conclusion

Raffles Hldgs appear to be a better choice as compared to HPL in terms of most of the fundamentals analysed above. HPL however offers a much better discount to NAV. Thus, the share price of Raffles Hldgs may go up on improving fundamentals while that of HPL may go up due to potential unlocking of its NAV.

Here, you have to choose between an outfit controlled by a GLC (or TLC) and managed by hired professionals vs one controlled and run by family.

The negative abt Raffles Hldgs is the large holding by Capitaland of ~60% and the small free float of ~28% (altho' it may be mitigated by the large nos. of issued shares).

Action

Based on this short study, I'm currently more inclined to not only hold on to my existing shares but will likely add on, for long term hold.

Announcements

1. 27-Jun : Raffles City Shopping Centre Embarks on 50,000 sq ft B1 Extension
2. 28-Apr : Q1-05 Results

Disclaimer : Use the above at your own risk! We'll not be responsible for any losses incurred but you can give us credit if you make money :D

# posted by Anonymous @ 7/17/2005 10:18:00 AM