Hidden value in hotel real estate. GLL's crown jewel is its Guoman/Thistle hotel chain, the leading hotel operator in London. Guoman/Thistle owns some 5,200 rooms across 16 hotels in London, sitting on prime locations in the heart of London City. We estimate this portfolio is conservatively worth USD1.68 billion, against a historical book cost of USD1.2 billion. This implies a surplus of USD466m, or SGD0.43/share. An upcoming valuation exercise for GLL's hotels, currently underway, as a result of a privatization offer for its parent Guoco Group by major shareholder Quek Leng Chan, should shed more light on the market value of its hotels and the embedded surplus of the related real estate
value.

Bass Straits oil royalty - the well that keeps giving. GLL owns a 55% stake in the Weeks Royalty, which entitled it to a 2.5% royalty granted by BHP/EssoMobil on the gross value of all hydrocarbons produced and recovered in designated areas within the Bass Straits of Australia. Bass Straits is one of the most prolific oil and gas producing region in the world, having yielded more than 4 billion bbl of crude oil and more than 7 Tcf of natural gas since 1969. Drilling activities continued to be high, centered on the AUD4.4 billion Kipper Tuna Turrum project with an estimated 1.6 Tcf of gas and 140m bbl of oil and gas liquid. GLL's royalty to this lucrative asset has been providing it with annual cash flow of USD40-50m, with potential upside on additional discoveries.

Trading at massive 53% discount to our SOTP valuation. We value GLL using a sum-of-parts methodology to best capture the disparate nature of its various investments. We value its Guoman/Thistle hotel portfolio at EUR250,000 per key for its London hotels, a 21% discount to the average transaction of EUR316,000 per key in 2012. We use net present value to value the cash flow stream from Bass Straits Royalty Trust, without factoring in upside from future reserve growth. Our valuation yields a SOTP of SGD1.78. We apply a 30% holding company discount to derive a TP of SGD1.25. In our view, GLL offers a compelling asset play with imminent catalysts from restructuring within the group and greater transparency on its hotel assets. Reiterate BUY.

Source: OSK