SINGAPORE (Oct 16): Lim & Tan Securities is maintaining its “buy” recommendation on GL given its undemanding gearing ratio, attractive discount to its asset value, and potential upside from its sale of loss-making assets.

In a Monday report, Lim & Tan’s research team says that since their last “buy” recommendation issued in August this year, GL, formerly known as GuocoLeisure, has risen by 15% to outperform the market’s 2% rise over the same period.

It continues to like the stock for its undemanding gearing ratio of 17%; 24% discount to its asset value; cheap EV/EBITDA ratio of 10 times; and potential for upside from the sale of loss-making assets such as by Molokai Properties Limited (MPL) and its casino business.

MPL is an indirect wholly-owned subsidiary of BIL, a wholly-owned subsidiary of GL which is in the midst of a long-standing dispute with the county of Maui.

GL has faced the dispute for many years, resulting in operations ceasing a few years ago. The county filed a motion alleging that MPL has breached or intends to breach terms of a settlement agreement executed on 2010.

GL last Friday announced that it has appointed Carvill Sotheby’s International Realty as its exclusive marketing agent to explore the sale of its assets on Molokai, Hawaii, which are currently being held by MPL.  

The Molokai assets comprise 55,000 acres of land on Molokai and operations which provide water and wastewater services. These have been listed for sale at US$260 million ($350.7 million) and Carvill Sotheby is currently in the process of marketing the assets.

The listing has prompted Bloomberg’s re-rating of the stock from 72-73 cents level to 86 cents today.

“If GL is able to sell the MPL for anywhere above US$190 million, we believe the market will re-rate the stock further from here given that this asset is valued at US$190 million on its balance sheet, yet is loss making and drains the company’s cash flows,” says Lim & Tan.

“Problem is, we understand, it will likely take some time to conclude given the very challenging problems that this asset face,” adds the team.

However, Lim & Tan remains optimistic of the group’s ability to dispose of its casino business due to its scarcity premium and the unique nature of its casino license for Clermont Club in Mayfair, London, which is valued at US$35-40 million.

It adds that while waiting for the disposal transactions to take place, GL’s investors are currently being paid what the research house considers a reasonable yield 2.6%.

As at 1.02pm, shares in GL are trading at 86 cents.