Far East Consortium profits up by a whopping 513%

Development profits set to surge, says OSK.

 Both revenue and core net profit increased by 9% and 513% to HKD903m and HKD345m respectively thanks to an 4.9% increase in RevPAR from hotel operations and a disposal gain of a hotel in Kennedy Town. Management also announced an interim dividend of HKD0.02, up 100% from 1HFY3/12A.

OSK projects that From FY3/13-FY3/15, residential property sales will contribute HKD367m, HKD1.3bn and HKD1.8bn to FEC's net profit respectively. Based on our DCF valuation as at end-FY3/13F, FEC's residential portfolio consists of properties in China (52%), Australia (31%), HK (15%) and Malaysia (2%).

"We consider such a geographically diversified portfolio a positive as it allows the Group: i) to reduce its reliance on any one region and ii) adjust its strategy to suit different property cycles," it said in a research noted.

With the strong performance, OSK said that Investors are getting non-hotel assets at 92% discount.

"Based on FEC's and Dorsett Hospitality (DH)’s (2266.HK, NR) closing share price on 28 Nov, we calculate that FEC's 73.25% stake in DH is worth HKD1.54/share against our end-FY3/13 ENAV of HKD4.33. This implies that FEC investors are paying HKD0.32/share (a 92% discount) for the group's ex-DH assets that have an end-FY3/13 ENAV of HKD4.16. These assets mainly comprise of all of FEC's residential/investment property projects and car parks," it said.

 Although the payout ratio of 6% in 1HFY3/13A is significantly lower than the 23% in 1HFY3/12A, management has guided that a higher full year payout on reported earnings of 30% in FY13F (26% in FY3/12A). As a result, OSK anticipates FY3/13 yield to rise to 7.5% (FY3/12A: 3.6%). "However, for conservative reasons, we have assumed a lower 20% payout ratio for FY3/14F and FY3/15F, giving respective yields of 9.0% and 12.8%," it said.