AMTD Research - 28 November 2017

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Far East Consortium

Foreseeable steady growth ahead

1HFY18 net profit surged by 52% yoy to HK$1.0bn (+52% yoy); interim DPS raised to 4 HK$ cents from 3.5 HK$ cents in 1HFY17

Total revenue slightly decreased by 6% yoy to HK$ 2.77bn. GPM of property development was improved by Guangzhou Riverside delivery, up to 59.4% from 39.1%. GPM of Hotel operations and management also improved from 27.8% in 1HFY17 to 39.8% in 1H18. Overall GPM increased from 37.6% in 1HFY17 to 50.6% in 1HFY18. Net profit surged by 51.6% yoy to HK$ 1.03 bn driven by strong GPM and one-off gains from hotel disposal. DPS increased by 14.3% yoy to HK$ 4 cents. We estimate contracted sales was very strong at HK$ 4bn, vs HK$6.8bn in FY17.

Foreseeable steady growth ahead; HK$ 13bn of unbooked presale & HK$ 33.7 bn of saleable resource

As of 30 Sept 2017, FEC had HK$ 13bn of unbooked presales and HK$ 33.7bn of saleable resource remains. HK$ 4bn of presale in 1H18 was mainly contributed by Artra in Singapore/ Tower 4 of West Side Place in Australia/ Royal Riverside in Guangzhou. Price of Royal Riverside in Guangzhou has surged from around HK$ 3,000 psf to over HK$ 4,000 psf. FEC will gradually deliver Royal Riverside in Guangzhou & the FIFTH in Australia in 2HFY18; Aspen Crest, Marin Point & Tan Kwai Tsuen project in FY19. Therefore, we estimate the delivery pipeline from FY18 to FY20 will be HK$ 3.4/4.9/7.2 bn, respectively. On the other hand, FEC has over HK$ 33.7 bn of saleable resource planning to launch in next 5 years. FEC has sufficient resource for future sustainable growth.

Hotel operation is strongly back on track

Revenue of hotel segment improved by 12.8% yoy. Hong Kong & Mainland China are the keys for the recovery. Hong Kong hotel maintained at over 90% occupancy rate & RevPAR increased by 8.3% yoy. RevPAR of hotels in Mainland China surged by 16.2% yoy and occupancy rate enhanced from 60% in 1HFY17 to 69% in 1HFY18.

Lower gearing ratio to only 30.8%

As of Sep-17, net gearing ratio dropped to 30.8% from 31.5% at Sep-16 with decent cash inflow from property sales. In 1HFY18, FEC had acquired car parks in Budapest, Hungary. It cost EUR 21 million. 6 carparks totally contain 1,392 bays, which will further enhance its cash flow stream in future.

Price target upgrade to HK$5.34 (21% upside); hidden gem with deep NAV discount

Improved GPM, foreseeable booking pipeline, sufficient saleable resource ahead, low gearing are reasons that we maintain ‘Buy’ for FEC. We upgrade our PT to HK$5.34 from HK$4.89 to reflect market price appreciation of development projects. Our PT is derived by using sum-of-the-parts method. Current share price implies a 61% discount to our estimated Sep-18 Net Asset Value (NAV).