Shangri-La Dated June 2011

Rober Kuok’s move to privatise his Singapore-listed company Allgreen Properties Ltd at a steep premium of 39%, raises talks of whether he will plan for a similar exercise for his listed firms here, which include the likes of Shangri-La Hotels ( Malaysia ) Bhd, Malaysian Bulk Carriers Bhd and PPB Group Bhd. 

However PPB Group, by virtue of it being his flagship company in Malaysia , is unlikely to be privatised. PPB’s key asset is its 18.3% stake in one of Asia ’s largest integrated agribusiness groups, Singapore-listed Wilmar International Ltd.

Kuok’s other companies reveals that his thinly-traded Shangri-La may prove to be an undervalued, asset-rich company.

The company, which has a market capitalisation of RM1.1 billion, has a portfolio of five hotels and large tracts of valuable land across Kuala Lumpur , Penang and Sabah carried at very low prices in its books.

Its net assets per share stood at RM1.85 as at March 31, 2011.

Shangri-La’s hotel assets include the Shangri-La Kuala Lumpur, Traders Hotel, Shangri-La’s Rasa Sayang Hotel and Golden Sands Resort in Penang, and Shangri-La’s Rasa Ria Resort in Sabah . Collectively, these five hotels have a total of 2,217 rooms. In addition, the company has a landbank of 27.4 million sq ft.

Excluding those where the five hotels are situated, Shangri-La has about 24.97 million sq ft of land, or 573.3 acres (229.3ha). Of this, 399.8 acres are undeveloped land next to its Rasa Ria Resort, as well as 165.3 acres for the Dalit Bay Golf Club, both in Sabah .

It is worth noting that the undeveloped land at Rasa Ria was carried at RM3.71 million as at December 2010, or a mere 21 sen psf while the Dalit Bay land was carried at RM32.3 million or RM4.49 psf.  If both tracts of land are revalued to RM10 psf, there could be a revaluation surplus of RM210.2 million.

With the property boom in Penang , a more interesting tract of undeveloped land is an 8.2-acre plot in the prime area of Batu Ferringhi, which has a book value of RM9.7 million, or RM27.11 psf. A revaluation to around RM120 psf could yield an estimated surplus of RM33.1 million.

Shangri-La’s fame lies in its strongly branded luxury hotels which are valued at low prices in its books.

In Penang, its three hotels — Traders Hotel, Shangri-La’s Rasa Sayang and Golden Sands Resort — also appear undervalued relative to their room rates.

Meanwhile, over in Sabah , the Shangri-La Rasa Ria Resort has a book value per room of RM212,467, while the room rate listed by the website was RM700 per night.

Assuming a value of RM1 million per room, the hotel could be worth RM420 million, instead of RM89.2 million.

At these market prices, a potential revaluation surplus of RM1.35 billion, or a significant RM3.08 per share. Based on its book value of RM1.80, Shangri-La’s revalued net assets could be worth some RM4.88.