Value Investing

[ARCHIVES] Peter Zaldivar: Hotel Shilla – Shop Until You Drop [SLIDES]

Peter Zaldivar, CFA, Portfolio Manager of Kabouter Management LLC presentation on Hotel Shilla Co Ltd (KRX:008770) (OTCMKTS:HSLLF) From Invest For Kids 2013 Conference.

The Stock: Hotel Shilla, 008770 KS

  • South Korea-listed company ($2B in sales)
    • $2.4B market cap, $18M daily value traded
  • 2 Hotels (10% of sales) in Korea
  • Duty-Free Shops (90% of sales) in Korea
    • 2 city locations; 4 airport locations

Korean Duty-Free: Safe and Growing

  • Duopoly: 35% share versus 50% Lotte (private)
  • Barriers: scale and government licenses
  • Fast Growth: 15% and ACCELERATING

Chinese Driving Asian Tourism Growth

  • Growing income levels
  • Low-cost airlines
  • Easing travel restrictions

Accelerating Growth for Hotel Shilla

  • Chinese now half of customer base and growing at over 30% per year
  • More Chinese getting passports – still <10%!

Why Stock Looks Cheap

  • Higher Quality, Faster Growth, Low PE relative to Peers

Hotel Shilla

Projected Return – Case 1

Hotel Shilla Co Ltd (KRX:008770) (OTCMKTS:HSLLF) should trade at over 22x PE

  • In line with 10-year historical average
  • Deserves premium over European peers
  • At low-end of similar growing company valuations

Over 28% upside from multiple expansion alone

Projected Return – Case 2

Hotel Shilla Sum of the Parts Analysis

Projected Return – Case 3

  • Duty-free peers trade at 1.2x PE to growth on average

If Hotel Shilla trades at same level, implied PE would be 28x (60% upside)

See full Slides in PDF format here.