Tuesday, 27 August 2013

Global Premium Hotel - Buy Recommendation

Hi everyone, I have officially entered the market for the first time in my life. I have just bought 10,000 shares of Global Premium Hotels (P9J) which is listed on the SGX at an average price of $0.25. Global Premium Hotels operates the second largest chain of budget hotels in Singapore, namely Fragrance Hotel. They have recently started a mid-tier hotel Parc Sovereign and I see much growth potential for this stock. This stock is not a trading play, and I recommend anyone who is looking at investing a sum of money into something stable for the next 3 to 5 years to place it here.

First of all, only be prepared to invest if you are comfortable with a debt-ridden company. The company is under tremendous debts, at around 50% of its total assets, with term loans for hotel development accounting for most of them. Yet, by doing a simple net asset value per share, the logical price level would be $0.30 and above.

However, I am quite optimistic about this company as with the trend towards integrated resorts in Singapore, I expect tourism numbers to increase and combined that with a weak economy, even middle income families might choose to stay in budget hotels.

Moreover, the majority share ownership is held by Mr Koh Wee Meng under Fragrance Group Ltd, a smart and savvy businessman who is also one of the most successful individual in Singapore with a net worth of $1.4 billion. Moreover, cash flow in the company is relatively healthy and unless there is a global recession, the company should stay strong. One possible worry is that the rise in interest rates might affect long term liabilities, but if interest rates increase too much, the entire Singapore economy might be crippled and I am sure that banks will try to avoid this.

In terms of room for growth, I remembered an article where Mr Koh Wee Meng said even though there are much competition, there are also many opportunities in Singapore. I personally feel that GPH should look at overseas expansion but since the majority shareholder is cautious about prospects, I should trust in the management. I mean, if you do not even trust the management, why would you purchase the shares of the company right?

All in all, I propose a buy recommendation for this company with a target price of $0.30.

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