Figure 1: Company structure
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- Imogen Shaw
- 6 years ago
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1 We see several positive factors in Regal s outlook. First, the revenue per available room (RevPAR) of its hotel business is expected to see 5-10% YoY recovery this year, which will likely drive much higher profit recovery in this segment on the back of operating leverage. Second, its total net profit is likely to rebound significantly with much more profit booked from the property development business. The Kau To luxury residential project is estimated to generate HK$3bn in pretax profit (equivalent to 48% of its market cap) after the completion in 2018 of P&R Holdings, a joint venture between Paliburg [0617 HK] and Regal, which will be the key growth driver starting in FY18. Third, Regal started buying back shares early this month, with the shares repurchased accounting for 0.5% of o/s shares month-to-date. Currently, Regal is trading at 0.37x its adjusted book value of HK$ COMPANY UPDATE REGAL HOTELS INTERNATIONAL HOLDINGS LIMITED [0078.HK; HK$7.00; NOT RATED] - Hotel business recovering. Eyes on upcoming luxury residential development. Market Cap: US$800m; Free Float: 33%; 3-month Average Daily Turnover: HK$7.9m Analyst: Rachel Chui Tel: rachelchui@chinastock.com.hk Hotel segment: Growing portfolio scale + recovery of room rates. Regal Hotels own 8 hotels through Regal REIT [1881 HK], in which it has a stake of 74.6%. On top of these 8 hotels, a new iclub hotel in Ma Tau Wai (owned by P&R Holdings), which received its license in May 2017, is an acquisition possibility from P&R Holdings to Regal REIT (LOI signed between both). Another 2 hotels in Hong Kong are under development in Mong Kok (2018 completion, 288 rooms) and Sheung Wan (2019 completion, 98 rooms). Skycity, the new project awarded by the Airport Authority in Feb 2017 for a consideration of HK$2,189m, is going to be an integrated development project comprising hotel (1,200 guest rooms expected), office and retail. The construction of the hotel project is presently anticipated to be completed within 4 years. Management expects the revpar in FY17 to grow 5-10% YoY, owing to the recovery in tourist arrivals. Kau To, a sizable luxury residential project with low land cost to potentially drive profit growth starting FY18. The total project profit before tax may reach HK$3bn (under P&R, a joint venture between Paliburg and Regal) if all units are sold (GFA 349,485 sq ft, 136 apartments and 24 luxury homes). Sales will be launched after completion in This project, Sha Tin Town Lot No. 578, was awarded in Sep 2013, at a cost of HK$6,800/sq ft. The latest land lot sold in Kau To is Sha Tin Town Lot No. 614, awarded to Cheung Kong with a land cost of HK$ 8,001/sq ft. Most of the lots in this area were sold in the price range of HK$8,000-10,000. Recent first- and second-hand transactions in the area amounted to over HK$30,000/sq ft. This is positive for Regal with the low land cost and the rising ASP in the luxury residential market. 26 June, 2017 [REGAL HOTELS INTERNATIONAL HOLDINGS LIMITED ] Daily turnover (HK$ 000) - RHS Source: Bloomberg, CGIS Research Share price (HK$) 25,000 20,000 15,000 10,000 5,000 Other property development projects to gradually contribute profit over the coming two years The pre-sold value of the project in Sham Shui Po in cooperation with the URA, which will be booked in FY17 or FY18, will amount to over HK$0.7bn. Two mixed-use projects are underway in Chengdu and Tianjin in the mainland. Completion of these developments will be in stages from FY17 onwards. Total presale value of the two projects is HK$2.2bn. The total profit attributable to Regal is estimated to be HK$0.3bn. Inventory of residential units for sale includes 14 houses in Regalia Bay, Stanley, and 23 houses in Casa Regalia, Yuen Long. Total potential sales value could reach HK$1.6bn. Recently Regal acquired an urban redevelopment site on Queen s Road West for a total consideration of HK$0.5bn, which is intended for commercial/residential development. Other potential acquisition targets nearby are also under consideration. Huge hidden value of its hotel assets: Currently, its hotel assets account for 55% of Regal s gross assets, and the property development business represents 22.6% of the total. Regal s book value per share is HK$12.9, but the fair value will increase to HK$19.16 if the hotel assets are priced at market value, according to the Company. Although Regal management declined to comment on the potential disposal of any of its hotel assets, we see huge potential to unlock the value of the Company given that many Mainland Chinese investors are still seeking quality property assets in Hong Kong. 0 1
2 Comfortable financial position: On a consolidated basis, Regal s net debt/equity ratio may look high at 72%. However, about 62.3% of its gross debt is at the Regal REIT level. Therefore, the actual debt at the Regal level is much lower, which explains why there is room for the Company to launch a share buyback. The situation will continue to improve significantly once we see a strong cash contribution from the sale of its property projects. Risk factors: Weakness in Hong Kong tourism industry; property price risk; and interest rate hikes. Company background: Regal, through its subsidiaries, is principally engaged in business undertaken through Regal REIT, hotel operation and management businesses, asset management of Regal REIT, property, including those undertaken through a joint venture in P&R Holdings, aircraft ownership business, and other s, including financial asset s. Figure 1: Company structure Regal Hotels International (0078 HK) 74.60% 50% Regal REIT (1881 HK) - Hotel ownership & acquisition P&R Holdings Hotel brand building - Regalia Bay Hotel project at Skycity/QRW development project Aircraft leasing 64.30% 8 Regal Hotels in HK Development projects in HK Cosmopolitan International Holdings (0120 HK) Development projects in Mainland China Figure 2: Recent share buyback Date No. of shares Market closing price (HK$) 05 June , June , June , June , June , June , June ,454, June , Total (Month to date) 4,868,000 o/s shares before share buyback 915,568,333 Share buyback as a percentage of o/s shares 0.5% Figure 3: Recovering overnight visitors to Hong Kong 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% Source: WIND Info, CGIS Research Overnight visitors to HK (YoY change) 2
3 Figure 4: Hotel performance RevPAR (HK$) FY13 FY14 FY15 FY16 Initial Hotels Chg (YoY) - 4.2% -12.3% -3.3% iclub Wan Chai Hotel 1,270 1, Chg (YoY) % -18.0% -2.8% iclub Sheung Wan Hotel Chg (YoY) % -4.0% iclub Fortress Hill Hotel Chg (YoY) % 11.8% Average room rate (HK$) FY13 FY14 FY15 FY16 Initial Hotels 1,044 1,071 1, Chg (YoY) - 2.6% -6.1% -3.2% iclub Wan Chai Hotel 1,208 1, Chg (YoY) % -18.8% -0.4% iclub Sheung Wan Hotel Chg (YoY) % -0.7% iclub Fortress Hill Hotel Chg (YoY) % 1.1% Average Occupancy (%) FY13 FY14 FY15 FY16 Initial Hotels 90% 92% 86% 86% iclub Wan Chai Hotel 100% 100% 100% 98% iclub Sheung Wan Hotel - 90% 92% 89% iclub Fortress Hill Hotel - 82% 81% 89% Avg. occup. Rate in HK % 87% 3
4 Figure 5: P&L (Dec year-end) FY13 FY14 FY15 FY16 HK$ m HK$ m HK$ m HK$ m REVENUE 3, , , ,617.1 Cost of sales (2,387.7) (1,200.0) (1,349.7) (1,428.7) Gross profit 1, , , ,188.4 Other income and gain, net Fair value gains/(losses) on financial assets at fair value through profit or loss, net (48.8) (46.8) Fair value losses on properties, net (1.0) 7.0 (4.7) (41.4) Fair value gain upon reclassification of a property held for sale to an property Gain on bargain purchase selling and marketing expenses - - (3.2) (7.6) Realisation of hedge reserve (1.0) Administrative expenses (196.5) (250.0) (250.8) (276.9) OPERATING PROFIT BEFORE DEPRECIATION 1, , , Depreciation (401.2) (453.5) (511.2) (530.3) OPERATING PROFIT Finance costs (300.2) (332.6) (330.3) (395.4) Share of profits and losses of: Joint ventures (5.4) (20.9) Associates (5.7) 96.7 (22.2) (12.4) PROFIT BEFORE TAX Income tax (55.3) 6.6 (36.9) (41.3) AFTER TAX PROFIT Attributable to: Equity holders of the parent MI Core profit EARNINGS PER ORDINARY SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT HK$0.27 HK$0.44 HK$0.13 HK$0.23 Source: Bloomberg, Company data, CGIS Research 4
5 Figure 6: Balance sheet FY13 FY14 FY15 FY16 NON-CURRENT ASSETS HK$ m HK$ m HK$ m HK$ m, plant and equipment 13, , , ,330.7 Investment properties , , ,026.0 Investments in joint ventures 2, , , ,146.8 Investments in associates Available-for-sale s Financial asset at fair value through profit or loss Other loan ,350.0 Finance lease receivables Debtors and deposits 2, , Deferred tax assets Total non-current assets 19, , , ,234.7 CURRENT ASSETS Properties held for sale Inventories Debtors, deposits and prepayments 1, , Finance lease receivables Held-to-maturity s Financial assets at fair value through profit or loss Other loan Derivative financial instruments Tax recoverable Restricted cash Pledged time deposits and bank balances Time deposits ,595.1 Cash and bank balances , ,105.6 Total current assets 4, , , ,564.7 CURRENT LIABILITIES Creditors, deposits received and accruals (391.0) (426.6) (424.4) (498.8) Interest bearing bank borrowings (333.5) (510.9) (279.9) (188.0) Other borrowings (2,281.7) Derivative financial instruments - (3.4) - (5.7) Tax payable (43.0) (53.1) (36.0) (60.8) Total current liabilities (767.5) (994.0) (740.3) (3,035.0) NET CURRENT ASSETS 3, , , ,529.7 TOTAL ASSETS LESS CURRENT LIABILITIES 23, , , ,
6 Figure 6: Balance sheet (con t) FY13 FY14 FY15 FY16 NON-CURRENT LIABILITES Creditors and deposits received (13.9) (27.8) (147.0) (135.6) Interest bearing bank borrowings (5,171.9) (6,362.1) (6,187.0) (6,170.7) Other borrowings (4,223.5) (4,234.3) (4,241.9) (4,621.3) Derivative financial instruments (4.1) Deferred tax liabilities (1,041.1) (1,034.7) (1,004.8) (954.6) Total non-current liabilites (10,454.5) (11,658.9) (11,580.7) (11,882.2) Net assets 13, , , ,882.2 EQUITY Equity attributable to equity holders of the parent Issued capital Reserves 11, , , ,736.8 Proposed final dividend , , , ,828.4 Non-controlling interests 1, , , ,053.8 Total equity 13, , , ,882.2 Net debt (7,942.4) (9,289.3) (9,135.6) (9,232.4) Net debt to equity 67.45% 77.77% 77.01% 78.05% Figure 7: Segment results data FY13 FY14 FY15 FY16 Revenue Segment results before depreciation Revenue Segment results before depreciation Revenue Segment results before depreciation Revenue Segment results before depreciation management, and 2, , , , , , (3.6)
7 Figure 8: Segment results data (cont.) 5% FY13 Revenue 1% 9% FY14 Revenue 40% 55% 90% FY15 Revenue 4% 7% 5% 8% 4% 10% FY16 Revenue 84% 78% FY13 Segment results FY14 Segment results 15% 10% 6% 85% 84% FY15 Segment results FY16 Segment results 11% 11% 1% 10% 10% 7% 77% 73% 7
8 Disclaimer This research report is not directed at, or intended for distribution to or used by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject China Galaxy International Securities (Hong Kong) Co., Limited ( Galaxy International Securities ) and/or its group companies to any registration or licensing requirement within such jurisdiction. This report (including any information attached) is issued by Galaxy International Securities, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to the institutional clients from the information sources believed to be reliable, but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness. This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company(ies) referred to herein. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. The recipient of this report should understand and comprehend the objectives and its related risks, and where necessary consult their own independent financial advisers prior to any decision. Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analyst who prepared this report, such views and opinions may not correspond to the published views or decisions of China Galaxy International Financial Holdings Limited and any of its subsidiaries ( China Galaxy International ), directors, officers, agents and employees ( the Relevant Parties ). All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. China Galaxy International and/or the Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment/s and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer. Disclosure of Interests China Galaxy Securities Co., Ltd. (6881.HK; CH) is the direct and/or indirect holding company of the group of companies under China Galaxy International. China Galaxy International may have financial interests in relation to the subjected company(ies) the securities in respect of which are reviewed in this report, and such interests aggregate to an amount may equal to or more than 1 % of the subjected company(ies) market capitalization. One or more directors, officers and/or employees of China Galaxy International may be a director or officer of the securities of the company(ies) mentioned in this report. China Galaxy International and the Relevant Parties may, to the extent permitted by law, from time to time participate or invest in financing transactions with the securities of the company(ies) mentioned in this report, perform services for or solicit business from such company(ies), and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other s related thereto. China Galaxy International may have served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the last 12 months, significant advice or services in relation to the concerned or a related or banking services to the company(ies) mentioned in this report. Furthermore, China Galaxy International may have received compensation for banking services from the company(ies) mentioned in this report within the preceding 12 months and may currently seeking banking mandate from the subject company(ies). Analyst Certification The analyst who is primarily responsible for the content of this report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report. Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the securities covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the securities covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong-listed companies covered in this report; and (4) have any financial interests in the Hong Kong-listed companies covered in this report. Explanation on Equity Ratings BUY SELL HOLD : : share price will increase by >20% within 12 months in absolute terms share price will decrease by >20% within 12 months in absolute terms : no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL Copyright Reserved No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited. China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459 Room , 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line:
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