For the last 5 years, GLL has been receiving a steady stream of cashflows of around US$39-54m p.a.

This asset is recognized on GLL’s books with a figure of US$122.4m as of 30 Jun 12. Although I am not an expert, given the steady cash flows, it is likely to be undervalued on GLL’s books.

It is also noteworthy that GLL has 54,636 acre of land parcel on Molokai island in Hawaii and some properties in Fiji. As of 31 Dec 2012, these properties are recognized in GLL’s books around US$177m.

According to DMG research in June 2012, GLL has entered into transactions which involves several land parcels changing at prices above its book value. This is another area where its assets may be undervalued.

 

Potential revaluation exercise

Mr  Quek Leng Chan  has offered to take Guoco Group Limited private. Such an exercise will involve an independent financial adviser which has to evaluate whether the offer by Mr  Quek is fair.

I guess the financial adviser would have to do a valuation of Guoco Group Limited’s assets in order to be able to assess the attractiveness of the offer by Mr  Quek.

If this were the case, it is likely that Guocoleisure, being part of Guoco Group Limited, may have to do a revaluation of its assets. Given current market conditions and the nature of GLL’s assets, the revaluation exercise is likely to be positive for GLL.

Decent valuations

GLL trades at 0.68x P/BV (NAV / share: $1.075) with a historical dividend yield of 2.7%. Valuations seem to be rather decent.

Likely delisting candidate in the long term

Within two months, Mr  Quek has offered to take Guoco Group Limited and Hong Leong Capital private. Although it is unlikely that he will launch an offer to take GLL private soon, this may arguably be his plan in the long term.

Recall that Guoco Group offered SGD1.20 / share to privatise GLL in 2005 but it didn’t succeed. In addition,  Mr  Quek Leng Chan has been regularly accumulating GLL on the open market. The most recent transaction was the purchase of 667K shares @$0.64875 on 16 Oct 12.

Investment risks

No rated analyst coverage

According to Bloomberg, there is no rated analyst coverage on GLL. The drawback to this is that investors and fund managers are still not familiar with GLL business and prospects, thus it may take some time for Mr Market to recognize this undervalued gem. Conversely, investors who understand and believe GLL’s prospects now can purchase it with a significant margin of safety.

Illiquidity

Ave 30D and 100D volume for 2.2m and 1.6m share respectively. It is noteworthy that it is not an exactly liquid company thus investors who are vested may not be able to enter or exit quickly.