News

Boustead to acquire a freehold property known as Hyde Park Hotel 23-26 Leinster Square London W2 4NE for £25.5m (RM138.975m) cash.

The property is located in Central London, UK comprising a 68-room hotel. It is strategically located in the Bayswater area of London and has good accessibility to major shopping and tourist attractions and close proximity to public transport and amenities.

The property is currently leased to an operator of the hotel for three years up to 30 Jan 2017 at an annual rate of £1.15m until 31 Jan 2016 and £1.2075m thereafter.

Financial impact

Net debt will increase from 126% to 129%.

Assuming financing cost of 6%, it will only dilute earnings by 0.4% based on the lease terms.

The asset is yielding a decent 4.5-4.7% based on the lease terms.

Pros / Cons

We are neutral to slightly positive given that it is expanding the group’s hotel investment portfolio (currently under the Royale Chulan and Royale Bintang brands) overseas.

Moreover, the expansion is at the expense of very marginal dilution on earnings given the decent yield of the asset coupled with redevelopment potential.

Risks

Lower than expected revenue contributions from different divisions and/or margins falling short of expectations as well as relatively high gearing and dilution from potential cash call.

Forecasts

Unchanged.

Rating

BUY

Positives –

• Still undervalued, relatively high and quarterly net dividend yield, earnings sustainability and market yet to fully appreciate the hidden values.

Negatives –

• Relatively high gearing and complicated group as well as quarterly fluctuation in earnings.

Valuation

Target price maintained at RM6.23 (10% holding company discount to estimated SOP of RM6.92).

Source: Hong Leong Investment Bank Research - 25 Jul 2014