Thursday, February 28, 2013

Global Premium Hotels - A Buy?

Global Premium Hotels (GPH) operates one of largest chain of budget hotels in Singapore. Its established track record and reputation of providing affordable accommodation has led to its "Fragrance" brand of hotels becoming well-established in the local and regional hospitality industry. Most of GPH’s assets and hotel operations are located in the city or city-fringe areas in Singapore.                                      

Global Premium Hotels runs 23 hotels across the country out of which 22 are wholly owned under the brand name Fragrance and one under Parc Sovereign brand. GPH provides economy and middle class hotels under two segments budget hotel operations and Boutique hotel operations.

Financial Results

4Q2012 revenue increased from S$14.2Million to S$15.7Million an increase of 6.8% Year on Year. Hotel room revenue increased S$1.4Million YoY. Gross Profit for the fourth quarter 2012, was S$13.06Million against S$12.43Million QoQ. Profit after tax declined almost 18% from S$5.3Million to S$4.36Million QoQ.

Operational Challenges

The main reason for the decrease in the Net Income Margin is due to increased labor cost; in relation to the wage rise and additional staff recruited for Fragrance Riverside. Despite this, the revenue increased because of a rise in hotel room charge and revenue contributed by Fragrance Emerald that offset the performance of its remaining hotels. Income for Global Premium Hotels also increased on account of a significant gain from revaluation of land and hotel buildings, resulting NAV per share climbed a whopping 25% Quarter on Quarter and valued at S$38.98.

Dividend Payout

Dividend paid for the reported quarter is S$ 1.4 cents which accounts for 80% payout ratio of net profit after tax and the yield works out to 5.2%. There is no dividend forecast for the current year FY13.

Looking Forward

Revenue estimates for the current year is at an average of S$62.5Million against the last year revenue of S$60.15Million. Contribution from Fragrance Ruby is expected to help achieve the increased estimates by going operational in the current year which is closed down temporarily for asset enhancement initiative. The company has also given open tender for acquiring more lands to develop and expand their business.

Stock Information

Global Premium Hotels Limited (“GPH”) was listed on the Singapore Exchange Securities Trading Limited (“SGX”) on 26 April 2012.

Global Premium Hotels (SGX:P9J) share price closed at S$0.27 a share. The average volume of shares traded is 4.02Million at the Singapore Stock Exchange. Analysts feel that the stock will further move past the 52 week high price of S$0.31 in the coming weeks.

Reasons to Buy

Majority of GPHs properties are freehold, and fair value has been increased from S$0.29 to S$0.33 using a 10% increase in Rectified Net Asset Value (RNAV). In addition, the founder, Mr Koh Wee Meng, has been buying up shares of his own company lately.  So that might be one good reason to buy this stock.  Some analysts have also issued Buy Calls on this stock.

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