Monday, November 6, 2017

Far East Orchard - Q3 FY17 Results Review

FEO just announced its Q3 results and I thought it was much expected from what many had thought to be a disappointment, especially if we compare them direct across year on year.

From the results, it also proves that FEO is far from reaching its status of being a hotel operator with much recurring income and that the company needs to be treated more as a developer with lumpy earnings. Many of the assets sitting in their book have not yet contributed to earnings, with completion such as the UK accommodation and Joint Venture project with Toga still ongoing. Hence, ROA is low if we look at how much the assets are generating relative to the earnings.

Hospitality revenues would come in at around $150m for full year and a net profit of around $12m. That's far from being able to sustain the 6 cents dividends they've been paying.

Based on the Q3 results, we continue to see similar decline in nature in sales due to the agreements in NZ and AU as well as the lower contribution from Perth and Brisbane. Echoing other companies results, it appears that only Sydney is prospering with growth at the moment. Almost everywhere else are saddled with supply issues and a lower revpar.

Shares of profits from the contributions of Rivertree Residences have tapered from this quarter since the progressive recognition of profits are about to almost complete, hence this resulted in a lower earnings. It is important to note though that the company received most of the repayment back from its JV from these sales hence cashflow has increased considerably. The company's stake of 30% in the projects yield them around $40m in cashflow, which translates to about 9 cents.

As at 30 Sep 2017, the company has a cash equivalent of $211m and a borrowing of $210m, so the company has gone back to a net cash position this quarter.

We are still seeing the company engaging on a few near term projects such as the development project for Woods Square, the mixed retail/residential project with Toga on the Harbourfront Balmain as well as the residential project in UK which is still in the infant stage, hence cashflow will be strained and will likely go back into net debt in the next 1 year or so until the Balmain repayment is completed. Since the arrangement is with an investment in JV, it is unlikely they will see the cashflow until at the very end when all are completed or when the JV decide to declare a dividend.

In terms of balance sheet, they have been revaluing their properties so their nav should be pretty much to date and I just suspect the share price might just continue to languish slow until the company is able to go back convincingly to a net cash position once again.

I'll continue to monitor meanwhile.

Vested with 20,000 shares.

Thanks for reading.

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  1. Indeed FEO is looking more like a developer instead of a hotel operator. I believe that with this Q3 result, it's going to trigger a sell down.

    1. Hi Sleepydevil

      Not so bad la, no selldown in this case, still waiting amd waitin....

  2. Hi B! May i know what is the target price you have in mind? What is your holding period for this counter?

    1. Hi Shirlynn

      My TP is around $1.70 short term, with longer term around $2 once we see the next few projects completed.

  3. Any reason for vesting in this stock except it cheap in term of P/B and that it own by Far East?

    1. Hi Anonymous

      The P/BV serves as a protection to downside for me while watching the company go back to netcash over next few quarters once more projects are completed is the next aim.

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  5. Hi B!

    I have also recently invested in FEO at $1.5, like you i saw their low p/b ratio and their stable div as a buffer. However, i am curious about your opinion on the senior management's ability to run FEO. It seems that without the late Mr Ng, Far East is no longer the competitive force it once was. What is your take on their current management?

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