Thursday, June 29, 2006

Aloha: Owning a slice of Hawaii

BIL International [SGX listed: S$1.35, 29 June 06]

The key investments of BIL International ("BILI") are the group of Thistle Hotels, Molokai Properties, Bass Strait Oil & Gas Royalty and Denarau Properties.

Thistle Hotels group represents BILI's primary investment. It owns, leases and manages 49 hotels in UK. It is the largest full service hotel operator in London. BILI has shown that it is willing to engage in sale and lease back structures to lighten its balance sheet. For example, 6 hotels were sold and leased back for 185 million pounds in April 2005. The sale proceeds were used to repay BILI's bank debt. It also allowed the group to book a profit of approximately US$50 million.

Molokai is one of the several Hawaiian islands. BILI has reached an agreement with Molokai community leaders to develop 65,000 acres of land, representing 40% of the Molokai island. This land includes 13 miles of coastal land and BILI intends to reopen a 152 room Kaluakoi hotel that it purchased in an abandoned state in 2001. BILI is currently seek an investor to develop the coastal land.
BILI owns 55.1% of the royalty granted by BHP/ESSO which gives the holder 2.5% of the gross value of all hydrocarbons, liquid or gass produced and recovered in certain areas within Australia's Bass Strait. This royalty is monetised for the next 10 yers through the ASX listing Bass Strait Oil Trust (BSOT), of which 20 mil is held by BILI.

Denarau is BILI's wholly owned property company in Fiji. It owns Fiji's largest resort (Denarau Island Resort in Western Viti Levu, 650 acre) and is currently working on a new five star resort and a commercial retail project.

Analysis: BILI is trading near its net book value. The bulk of its assets comprise of hotels in London situated on freehold and leasehold land which is likely to be valuable. It is likely that BILI will engage in more sale and lease back transactions following the successful sale of the 6 hotels in April 2005. Any profits from such transactions will likely accure to its earnings as much of its debt has been paid off.

There is a potential earnings catalyst in the units of BSOT. The 10 year monetization of BSOT will expire in 2007 and all subseqently cash flows of the royalty will revert to BIL. Hence, from 2007, the contribution to revenue of Bass Strait is likely to approximately double to 24 mil. This translates to an additional US$0.88 per share in earnings. BILI has also keen on securing a casino license to operate a gaming venue in one of their London hotels. Future casino operations can be a boost to its bottomline.

Another noteworthy aspect is that its controlling shareholder, Mr LC Quek has been snapping up more shares in the open market. This is suggestive of improved fortunes for the group ahead.