LC Development

LC Development

Postby winston » Fri May 23, 2008 10:50 am

Not vested. From Kim Eng:-

LC Development Company Update
BUY (Wilson LIEW; DID: 64321454) Previous Day Closing price: $0.26
Recommendation: BUY (maintained)
Target price: $0.54 (reduced from $0.72)

3Q08 in the red despite better results from Phuket

Hotels enjoying high occupancies
LC Development (LCD) posted a net loss of $0.98m for 3Q08 as opposed to a $4.0m gain in the same period last year. Revenue improved 11.2% to $17.7m due to the better performance at Holiday Inn Phuket (HIP), which partially offset the decline at Holiday Inn Kensington due to the weakening of the Sterling Pound. Also, due to the better performance of HIP, taxes and minority interests were higher than expected, resulting in a net loss. On an operating level, results were below expectations as administrative expenses increased from the higher headcount in the hotel sector, mainly for HIP too.

Diversifying earnings base
LCD’s hotel operations continue to do well, as its operating profit rose 27.1% Y//Y to $5.2m, due mainly to higher contribution from HIP. However, the serviced residence sector’s operating profit dipped slightly by $0.1m to $0.3m due to the weaker US Dollar. The Group’s share of earnings from its associates and joint ventures was a loss of $0.4m, mainly accrued to the pre-opening expenses of the Crowne Plaza Changi Airport. The airport hotel should open around the end of May and will only make significant contributions starting from FY09.

Foundation-strengthening period
LCD still has 2 unlaunched residential projects, namely the villa development in Koh Samui and the luxury condominium project In Phuket. We expect these projects to contribute to earnings only in late FY09 and FY10. In February this year, the Group also acquired a company called NCI Leisure (NCIL), which owns and operates 9 outlets of family entertainment centres under the brand “Zone X” for $7m (NCIL’s FY07 net profit was $1.1m). LCD is looking to expand NCIL’s operations overseas and possibly incorporate some outlets in its hotels.

We are lowering our FY08 and FY09 forecasts by 65% and 26% respectively to factor in higher pre-opening expenses for Crowne Plaza Changi Airport, higher operating expenses for HIP and an adjusted profit recognition schedule for the proposed condominium in Phuket. We believe FY08 should be seen as the year where LCD strengthens its earnings base enabling
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