【AMTD Research】 FEC (35.HK) FY17 Earnings Review
Many years of steady growth to come
FY17 net profit at HK$1.1bn (+52% yoy); DPS raised to 18.5 HK cents
Total revenue growing by 25% yoy to HK$ 5.0bn. We estimate that presales in FY17 reached HK$6.8bn vs HK$3.6bn in FY16 and HK$2.6bn in FY15. Property development revenue booking is on track with development revenue at HK$2.9bn, +49% yoy. Unbooked property sales reached HK$10.7bn, up from HK$7.5bn at Mar-16. FEC has a strong and well diversified presales pipeline in Hong Kong, Australia, UK, Singapore and China with gross sales value of around HK$33bn for the next five years. Hong Kong’s hotel segment is bottoming out with RevPar in 2HFY17 growing by 3.1%. Overall gross margin slightly dropped to 40% in FY17 but we expect gross margin to recover in FY18/19 as higher margin projects in China contribute more. We estimate a revenue CAGR of 26% and earnings CAGR of 22% in next 3 years. The stock is trading at 60% discount to NAV. We maintain Buy.
High visibility for FY18; unbooked property sales reached HK$10.7bn
FY17 property presales were contributed by West Side Place in Melbourne, The Royal Crest II in Shanghai and Royal Riverside in Guangzhou; completion include three projects namely UWS Stage 4 in Melbourne, King’s Manor in Shanghai and Eivissa Crest in Hong Kong (booked in other gains). FEC has achieved HK$3.3bn presales for projects scheduled for completion in FY18 (FY17 development revenue HK$2.9bn), which represents 86% of our development revenue forecast for FY18. Other presold projects will be completed through 2019-2021.
Hotel performance on recovery track
FEC saw solid recovery in hotel segment in FY17 (Figure 5). Overall HK$ RevPAR was +0.2% yoy. The recovery was particularly strong in 2HFY17. In Hong Kong, the occupancy rate rose by 4.1pp while average room rate declined 4.9% yoy due to new hotel opening. We expect RevPAR to further recover in FY18 as the company improves average room rate while keeping high occupancy rate. FEC disposed Silka West Kowloon in May 2017 for a consideration of HK$450m and a gain of HK$316m. FEC will continue seek opportunities to dispose of its non-core hotel portfolio such as the Ritz-Carltons in Perth and Melbourne.
Active land acquisition with financial discipline
As of Mar-17, net gearing ratio dropped to 31% from 38% at Mar-16 with strong cash collection from property sales. In FY17, FEC further replenished its land bank in major cities, including Northern Gateway in Manchester (a very large scale projects involving 10,000 new homes, to be developed in phases over next 10 years), Angel Meadow in Manchester (750 apartments) and Perth City Link in Perth (270 hotel rooms and 350 apartments).
Price target upgrade to HK$4.89 (16% upside); deep NAV discount
We upgrade our PT to HK$4.89 from HK$4.11 as we roll over to Mar-18 and to reflect newly added land bank. Our PT is derived by using sum-of-the-parts method, Current share price implies a 62% discount to our estimated Mar-18 Net Asset Value (NAV).
This article is only a summary (the “Summary”) of a published research report (the “Report”). It only includes part of the comments and views stated in the Report, which has been issued by Research Department of AMTD. The mentioned comments and views such as target price, company profit forecast, industry trend forecast, etc. are based on a series of preconditions and assumptions. Readers should study the full version of the Report issued in details so as to form a thorough understanding on the expressed comments and views.
The Summary is solely for AMTD clients’ information. A person will not be regarded by AMTD as its client solely because he or she receives this Summary. The contents of the Summary will not constitute investment recommendations to any person in any event. AMTD will not assume any legal responsibilities regarding any consequences or losses arising from the direct or indirect use of the Summary, or investment made accordingly.
The extracted valuations, forecasts and ratings in the Summary represents the judgments or opinions formed on the issuance date of the Report. The contents of the Summary may become inaccurate or invalid as a result of changes in circumstances or other factors subsequent to the issuance of the Report. AMTD is not obliged to update inaccurate or outdated information subsequently. Meanwhile, AMTD will not separately inform the readers of the Summary after updates have been made.
AMTD reserves the copyrights of the contents of the Summary. No part of the Report shall be forwarded, modified, quoted, copied or reproduced in any form by any mean to any other person without the prior written consent of AMTD. The Company retains all legal rights in this Report.