Maybank Economics Project 4 Shangri-La Asia Limited Done By: - - PowerPoint PPT Presentation

Maybank Economics Project 4 Shangri-La Asia Limited

Done By: Leader :Liu Jou Hsuan Members : Felicia Lee, Janna Tan, Valarie Tam, Mandy Ho, Amelia Yee.

Shangri-La’s main business

Shangri-La Asia Limited is in charge of four main hotels which are Shangri-La Hotels, Shangri-La resorts, Kerry hotels and Traders hotels and is an investment holding company. It provides hotel management, marketing, consultancy, reservation, and related services.

• Involved in real estate investment, development, and operation activities.
• It also operates a staff training academy and leases office properties,

commercial properties, and serviced apartments.

• Furthermore, it also owns a golf club and licenses intellectual property rights,

as well as in office management activities. .

The outstanding shares and paid up capital of the firm? Shangri La Asia limited

Total revenues and operating cost for the last 2 years Shangri La Asia limited

1) The HongKong and Shanghai Hotels, Limited. The Hongkong and Shanghai Hotels (HSH) deals in luxury. The group

• wns and operates about two dozen deluxe hotels and commercial and

residential properties in Asia, Australia, and North America. 2) New World Development Company Limited. This hotel is focused on residential projects, complemented by a sizeable investment property portfolio comprising shopping malls, offices, hotels and service apartments. 3) Mandarin Oriental International Limited. The company, which is incorporated in Bermuda and operates as Mandarin Oriental Hotel Group, owns, manages, or has under development about 40 upscale hotels in more than two dozen countries in Asia, the Americas, Europe, the Middle East, and North Africa.

Shangri-La’s Competitors

Names Of Hotels

Earnings per share Dividends per share Revenue

Shangri-La Asia Limited

0.63 HK$ 20.00 Hk cents 14829.4 HK$m

The HongKong and Shanghai Hotels,

• Limited. (HK dollar)

1.52 HK$ 14.00 HK cents 5009 HK$m

New World Development Company

• Limited. (HK Dollar)

2.10 Hk$ 38.00 HK cents 2767.5 HK$m

Mandarin Oriental International Limited. (US dollar)

0.46 HK$ 47 HK cents 4763.5 HK$m

Names Of Hotels

Earning s per share Dividends per share Revenue

Shangri-La Asia Limited

0.89 HK$ 20.00 HK cents 15955.1 HK$m

The HongKong and Shanghai Hotels,

• Limited. (HK dollar)

1.40 HK$ 14 HK cents 5178 HK$m

New World Development Company Limited. (HK Dollar)

1.88 HK$ 38.0 HK cents 3995.9 HK$m

Mandarin Oriental International Limited. (US dollar)

0.55 HK$ 54 HK cents 5027.3 HK$m

2012 2011

Oligopoly

• Shangri-La is an oligopoly as only large firms are able to spend money on non-

price methods to inform more consumers of its existence.

• It is one of the few hotels which has built up a world known reputation.

Substantial barriers to entry

• Economies of scale. (Large capital required)

Large capital is needed to improve services. Therefore, it needs to purchase resources in bulk.

• Mutual dependence and price rigidity

Firms depend on each other and consider responses of rival firms before setting prices.

• Financial economics of scale.

Banks may not be willing to borrow money to smaller firms due to high risks involved.

How does it compete against its competitors?

• Demand for services from Shangri-La limited hotels are inelastic. Therefore firms

are discouraged to compete with its rival firms by price competition.

• Non-price methods

Shangri-La uses many advertising and charity methods to inculcate the idea on consumers that they are caring and will help any strangers in need.

How does oligopoly (Shangri-La Limited ) works?

Collusion between firms

• A collusion involves non-competitive agreement between rivals that attempts to

disrupt the market's equilibrium.

• Sharing of private information
• In order to maximise the amount of profit, Shangri-La will have to collude with other

large firms in order to attract more consumers.

Graph after advertising

In conclusion, Shangri-la uses non-price competitions to attract consumers into their services as price competition is too risky and waste a large amount

• f resources.
• Demand curve

moves to the right

• Creates imaginary/

real difference between products from different firms

• Facilities.
• Superior Staffs.
• Accommodation.
• Distributions.
• Promotions.

Market Advantage (Shangri-La)

• Programmes.
• Privileges.
• Consistence.
• Standard.
• Management. Shangri-La is one
• f the few hotel companies that
• wns most of its properties.

PES of Shangri La Asia Limited is inelastic

Graph for PES Reasons Leading To Price Inelastic of Supply

• Fixed number of rooms in a hotel
• Fewer number of substitutions
• High income earner as the target

audience

• Small workforce

Good Profit

Shangri-La Limited Profit margin: profit $382,196000(USD, as of 2012) / revenue $2,057,249000(USD, as of 2012) X 100 = 18.58% (4 sig.fig.) The HongKong and Shanghai Hotels, Limited Profit margin: $817 (HK m, as of 2012) / revenue $5178 (HK m, as of 2012) X100 =15.78% (4 sig.fig)

New World Development Company Limited Profit margin: profit $609.6(HK m , as of 2012)/ revenue $3559.5(HK m , as of 2012) X 100 =17.14% (4sig.fig) Mandarin Oriental International Limited Profit margin: profit $84.4 (US m , as of 2012)/ revenue $648.3 (US m, as of 2012) X 100 =13.02% (4sig.fig)

Hotels Profit Margin (As of 2012, HK m) 4 sig fig

Shangri-La Limited

18.58%

HongKong and Shanghai hotels, Limited

15.78%

New World Development Company Limited

17.14%

Mandarin Oriental International Limited 13.02%

Tabulation Of Profit Margin in 2012

If there is a problem in returning the loan, Shangri-La may:

• Issue more shares and sell their existing shares to earn money to repay loan.
• Sign an investment bank loan.These kinds of bank loans need credit checks which

are precise because large amounts of money are involved

• Signing a term loan, which is repaid in regular payments over a set period of time. It

involves an unfixed interest rate that will add additional balance to be repaid.

• Mortgage assets such as buildings, equipments to our bank and to sell assets like

their chain of Shangri-La hotels to people which are able to afford them.

• As Shangri-La owns properties and serviced apartments/residences, they would be

able to sell them to raise money.

• We will also be confident in lending loan to Shangri-La as it undergoes economic

diversification

Legal Framework

Short term

Short term (Commercial loan):

• A commercial loan is used to fund

large capital expenditures and/or

• perations that a business may
• therwise be unable to afford. It

allows firms to purchase machineries for better operations.

• Why? For operating costs and

the purchase of furnitures.

• With commercial loan, there

will be sufficient capital.

• Beneficial for both parties in
• verall.

Long term loan (Mortgage)

• A long term loan, often up to 25 years

used by people or firms to buy property. Loan is secured against the property.

• Why? Shangri-La is constantly

expanding their market and establishing existing hotels

• With mortgage, we provide them

sufficient capital.

• Many assets and high profit margin

(Less Risk)

Long term

Decision: Short term loan for 3 years

• Commercial loan and mortgage

Why 3 years as timeframe?

• Enforced legal network
• Lower Risk

Why not long term loan?

• Economic Collapse may occur

Conclusion

In conclusion, Shangri-La is a big and stable company which is efficient in

• peration and provides good services to consumers.

The company makes a huge amount of profit annually and has built a worldwide

• reputation. The are limited risks in loaning money to Shangri-La as they target high

income earners. The company is also competitive and manages the business well with such superior quality.