A FILING TO the Stock Exchange last month shows Marathon Asset Management as a major shareholder of GuocoLeisure with a stake of over 5%, making the fund the second largest shareholder. GuocoLeisure is controlled by Malaysian billionaire Quek Leng Chan who raised his stake earlier this month to 65.54% through his Hong Kong-listed Guoco Group.

 

Marathon is known to be an activist shareholder with a very long term investment philosophy based on the “capital cycle” approach (Read our story Will Genting Singapore’s sale of UK unit succeed? in this week’s issue).

 

The fund manager has over the years resisted buyout offers, including those for Sembcorp Marine, Great Eastern Holdings and STATS ChipPAC. Today, these companies remain listed. Interestingly, in 2005, Guoco Group made an offer of $1.20 for the 61% of GuocoLeisure shares it did not hold. This year, Guoco Group added 9.5% to its stake, buying over Third Avenue’s stake.

 

GuocoLeisure owns hotels and gaming interests in the UK, hotels in Malaysia, and property in Fiji and the US. As at Mar 31, its NTA stood at Corrected: 72 US cents (99 cents), and prices are trading at an 11% discount to NTA. In a report on Thursday, Kim Eng Research points out that among “its prized assets are 37 Thistle and Guoman Hotels in the UK (of which 16 are owned or leased), as well as the value of its UK casino licences and a 55% interest in the Bass Strait Oil Trust”. In addition, the company owns real estate on two islands in Hawaii (a 53,660-acre land parcel on Molokai Island) and Fiji (Denarau Golf & Racquet Club, Denarau Beach Resort and Port Denarau retail centre).

 

Kim Eng points out that GuocoLeisure has made clear its intention to exit its property businesses in Hawaii and Fiji. The carrying value of the assets was US$179 million ($246 million) or 13 US cents per share as at Mar 31, 2010. “In our view, the proceeds could be returned to shareholders if there is no other investment need,” Kim Eng reckons. Before the global financial crisis, GuocoLeisure used to pay a dividend that was as high as 3.5 cents per share. Dividend per share in FY09 was 1.5 cents a share.

 

Elsewhere, DBS Group Research points out that CSE Global clinched a number of contracts in the second quarter of this year worth $33 million. These include four projects in the Middle East and one project in the UK, providing automation, telecommunications and physical security systems. DBS expects CSE to secure over $120 million of new orders in 2Q10 and $550 million of new orders in FY10F. It has a target $1.25 for the stock. CSE ended the week at 92.5 cents.

 

Shane Oliver, chief economist at AMP Capital Investors, points out that Chinese economic activity data for the June quarter shows its economy has cooled down with GDP growth slowing to 10.3% from 11.9% in the March quarter and that inflation has possibly peaked. With the economy and the property market coming off the boil, Oliver reckons that the risk may have shifted to growth being too weak. Hence he expects some of the tightening measures to be relaxed in the next few months. “Just as a shift towards policy tightening last August saw the Chinese share market top out, a shift towards policy relaxation some time in the next few months is likely to help fuel a recovery in the Chinese share market, probably through the December quarter and next year,” Oliver says.

 

Citi Research says there is already a rebound in June transaction figures for property sales in China. The beneficiaries of any relaxation are likely to be companies like Shimao and Poly HK. Citi also sees China Vanke, COLI and Evergrande outperforming in terms of property sales.

 

The STI (2,957) may ease temporarily following the run-up in the past week, which has taken it above all its moving averages and within earshot of a heavy resistance area at 3,000. Any retreat finds support at 2,900. The break above this level more than a week ago indicated a target of 3,120. The uptrend has been strengthened by the upturn of the ADX indicator and the target looks attainable. — Goola Warden