Sunday, April 22, 2012

Global Premium Hotel Limited

Global Premium Hotel Limited

Offer Price: $0.26
Offer Size: 450m new shares
Public Tranche – 13m shares
Placement Tranche – 437m shares
NAV per share (post-IPO): S$0.2897
Historical PE: 7.5x (FY10)
Market Cap (post-IPO): S$260m
Open: 19 Apr 2012
Close: 24 Apr 2012, 12.00 noon
Trading: 26 Apr 2012, 9.00 a.m. (on “ready” basis)

Global Premium Hotel Limited operate one of Singapore’s largest 
chains of hotels with 23 hotels, of which 22 are operated under our 
“Fragrance” brand and one hotel under the “Parc Sovereign” brand. 
GPH provide economy-tier and mid-tier class of accommodation with
1,738 rooms in Singapore and own all our hotels save for Fragrance
Hotel – Elegance. As at 31 October 2011, the market value of all the
22 hotels which GPH own amounted to S$747.6 million.

The company is principally engaged in the business of developing and
operating economy-tier to mid-tier class hotels. The established track 
record  and reputation of providing affordable accommodation has led to
“Fragrance” brand of hotels becoming well recognised in the local 
and regional hospitality industry. Most of the hotel property assets and
 hotel operations are strategically located in the city or city-fringe areas.
Over 85% of the 22 hotels owned are on freehold land. The hotels are
fairly new, with half being in operation for five years or less.

The company will raise about S$112.1 million from the listing
of shares and they will use the net proceeds as followed:

(a) approximately S$75 million will be Partial repayment of the 
Purchase Consideration
(b) approximately S$30 million will be Development and expansion of
 hotel business and operations in Singapore and overseas
(c) approximately S$7 million will be Working capital purposes

Global Premium Hotel Limited is actually a spin-off from its parent,
Fragrance Group which is also listed in SGX and will remain as the
major shareholder after the listing. The company intend to distribute 
at least eighty per cent. (80%) of net profit after tax to Shareholders
for FY2012, as they wish to reward our Shareholders for participating in
our Group’s growth. According to Euromonitor International:
i) Singapore’s inbound tourist arrivals are expected to increase by 2.7% p.a.
during 2011-2015 to reach 21.9m trips by 2015; and
ii) Retail value of Singapore hotel accommodation is expected to increase
by 50% from an est. S$4b in 2011 to S$6b in 2015
According to the Singapore Tourism Board, for the first two months of this 
year, the Revenue per Available Room (RevPAR) of Singapore hotels has
increased by 19% YoY to S$225, according to the Singapore Tourism Board.

The hotel chain has grown over the years, with 5-year CAGR of 13.9%
 and 10.9% for the number of hotels and rooms respectively. It also 
achieved growth in the average occupancy rate from 76.9% to 89.4% 
between 2008 and 2010. GPH’s revenue for FY10 was S$44.2m, 
demonstrating a 2-year CAGR of 9.4%. 9M11 revenue was at S$38.9m, 
up 20% YoY. GPH’s gross profit margins for FY10 (ended Dec 2010) and 
9M11 were both at 88.3%. Net profit margins for FY10 and 9M11 were 44.9%
 and 44.5% respectively.

It is very interesting to know that the company is actually listed at a discount
to its NAV and not like many others listed at a huge premium over it.
Although it can be deduced that most of the company's asset are the hotels

and the land it owned and so it is subjected to varied valuation at different time,

but I still like the fact that we are getting the stock at a discount right now. 

Also, another thing worth mentioning is the average price that the major 

shareholder Fragance Group actually "paid" for the share at 25cts and we as

a new shareholders can get the share at 26cts. That is only a single cent above

the major shareholder and this will also provide a good support to the share price.  
Just for comparison purpose, Bumitama's post-IPO NAV is 32.9cts and the 
new shareholder are paying 74.5cts which is a premium of 56%. The major
shareholder's average price per share are 4 and 2.6cts respectively and
the public pay the IPO price of 74.5cts
Civmec listed at 40cts and its post-IPO NAV is 12.7cts The major shareholders
pay as low as 4cts to a high of 23.4cts for the shares and public pay 40cts.
Get the picture?

When I look at the not-final prospectus in the comment stage, I wasn't really 
impressed by what I read and thought of giving the IPO a miss. But I was wrong, 
when I read the final prospectus again, I was sold and I believe that this a great
opportunity to own a stock that is likely to grow with the nation's progress and 
the influx of tourists and foreigners. With 13 million shares for public application,
the chances of getting the share is reasonably high and I will "show-hand" to
apply for it. If I manage to win the lucky draw, I will hold the stock for a 50-100%
profits considering the dividend and capital appreciation. 
Take note that I am not saying that the stock will surge 50-100% on its debut but
I will keep the stock until that level. This is just my view but I believe that given 
its business potential and prospect, it is a future take-over target, and I totally 
won't be surprise if it happen this way. But this is just my crystal-ball reading, 
so take it with a pinch of salt.

Source: Global Premium Hotel Limited IPO Prospectus, IPO Fact Sheet

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