Making of a Niche Hotelier

LC Development is a hotel owner and operator with property project management

capabilities as well. With over 20 years of experience in the hospitality industry, it

has a portfolio of seven developments that include three Holiday Inn hotels, two

serviced residences, one upcoming airport hotel and a future resort hotel

(constituting a total of 1,422 hotel rooms and 183 serviced apartments). These

properties are located in Singapore, Thailand, Vietnam, Laos, the UK and China.

♦ Active Days for Global Hotel Investments

There has been a flurry of hotel investments globally in the last couple of years.

In the Asia Pacific, Jones Lang Lasalle reported that the total transaction volume

was around US$5.25b in 2006 and projected that it would exceed US$7b in 2007.

The region is expected to continue its robust economic performance with the

rapid growth in travel across the region. This should underpin rising occupancy

rates, and with some countries reportedly having little new stock under

development, higher room rates as well. By comparing market prices, we

estimate the company?s portfolio of assets to have a market value of close to S$1

billion.

♦ Income Stream Set to Improve

The company is set to unveil the iconic Crowne Plaza Changi Airport in early

2008, the first-ever airport hotel in Singapore. Designed by the award-winning

WOHA Architects, the 320-room hotel is expected to enjoy strong occupancy

rates due to its convenience and proximity to the Changi Business Park. In

addition, the company recently acquired a 1.3m-sq ft land parcel in Koh Samui,

Thailand. Apart from constructing a luxury beach resort hotel there, LC

Development will also develop some 50 to 60 villas that will be available for sale

from possibly 2H08. We expect the resort hotel to be operational by 2H09.

♦ Room to Sniff Out New Opportunities

Over the last couple of years, the company has undergone a restructuring of

sorts. First, it demerged from its former parent company. Then it strategically

monetised a number of low-yielding assets. As a result, it now has a healthy

balance sheet with a near net cash position. This allows the company to work

with its strategic partners to sniff out and secure new investment opportunities.

♦ Undervalued Hospitality Play; BUY

We are initiating coverage on the company with a BUY recommendation at a

target price of $0.75 based on RNAV. We think the company is poised to ride the

upside of regional tourism. Leveraging on its network of strategic allies, its nearterm

prospects are exciting.