ed: JS/ sa: PY, CS
BUY (Initiating Coverage)
Last Traded Price ( 23 Jul 2021): S$1.11 (STI : 3,157.05) Price Target 12-mth: S$1.70 (53% upside)
Potential Catalyst: Restart of leisure travel, acquisition of PBSA beds
Analyst
Wei Le CHUNG +65 6878 7869 [email protected]
Derek TAN +65 6682 3716 [email protected]
Price Relative
Forecasts and Valuation
FY Dec (S$m) 2019A 2020A 2021F 2022F
Revenue 156 112 130 155 EBITDA 67.1 26.0 39.4 58.4 Pre-tax Profit 29.9 (3.4) 0.20 17.9 Net Profit 26.0 1.54 0.16 14.3 Net Pft (Pre Ex.) 26.0 (7.3) 0.16 14.3 EPS (S cts) 5.94 0.34 0.04 3.15 EPS Pre Ex. (S cts) 5.94 (1.6) 0.04 3.15 EPS Gth (%) (21) (94) (89) 8,652 EPS Gth Pre Ex (%) (21) nm nm 8,652 Diluted EPS (S cts) 5.94 0.34 0.04 3.15 Net DPS (S cts) 6.00 3.00 3.00 6.00 BV Per Share (S cts) 285 272 269 267 PE (X) 18.7 328.7 3087.3 35.3 PE Pre Ex. (X) 18.7 nm 3087.3 35.3 P/Cash Flow (X) 15.3 26.2 20.3 11.8 EV/EBITDA (X) 9.5 28.9 19.3 14.1 Net Div Yield (%) 5.4 2.7 2.7 5.4 P/Book Value (X) 0.4 0.4 0.4 0.4 Net Debt/Equity (X) 0.1 0.2 0.2 0.2 ROAE (%) 2.1 0.1 0.0 1.2 GIC Industry : Real Estate GIC Sector: Real Estate Holding & Development Principal Business: Far East Orchard is a real estate owner and operator. It is mainly involved in the hospitality sector globally, purpose-built student accommodation assets in the UK, and medical suites in Singapore.
Source of all data on this page: Company, DBS Bank,
Bloomberg Finance L.P.
At A Glance Issued Capital (m shrs) 464.5
Mkt. Cap (S$m/US$m) 515.6 / 379.2
Major Shareholders (%)
Far East Organization Centre Pte Ltd 61.3 Free Float (%) 38.7
3m Avg. Daily Val (US$m) 0.05
DBS Group Research . Equity
24 Jul 2021
Singapore Company Focus
Far East Orchard Limited Bloomberg: FEOR SP | Reuters: FARE.SI Refer to important disclosures at the end of this report
Deep value within
• Deep value and compelling reasons to trade higher
• EBIT from PBSA will grow at a CAGR of 19.6%
• Nearing a comeback for its hospitality segment
• We initiate coverage with BUY and TP of S$1.70
Deep value and compelling reasons to trade higher. Far East
Orchard (FEO) is currently trading at a TTM P/B multiple of
0.40x, which is at a discount to its hospitality peers (0.81x),
PBSA peers (0.64x), and historical average (-0.54sd of its 4-year
historical mean). With a pivot away from lumpy residential
business into more recurring income focus from its hospitality
and PBSA portfolio, we believe that earnings volatility will be
greatly minimized. With greater earnings visibility, we expect the
group to return to a “REIT-like” payout of 6 scts/share in FY22F,
translating to a yield of c.5.5%.
Ambition to be a significant PBSA player; EBIT from PBSA will
grow at a CAGR of 19.6%. FEO aims to grow its number of PBSA
beds from 3,561 beds to 5,000 beds in 2025. This asset class
has shown resilience against economic downturns and we
believe that its PBSA business will be FEO’s main growth engine
in the next few years, as we project its EBIT to grow at a CAGR
of 19.6% from FY20-25F and in the medium term, contributing
to 55% of its EBIT in FY25F.
Nearing a comeback for its hospitality segment to boost
earnings in FY21/22F. We believe that the gradual return of
leisure travel in Singapore is imminent with Singapore’s high
vaccination rate and its ongoing discussions. FEO aims to add
an additional c.8,500 hotel rooms by 2025 and based on our
estimates, it could translate to c.S$32m and c.S$7m of
additional revenue and EBIT.
Valuation:
Initiate with BUY and TP of S$1.70. We used a blend of its 10-year DCF valuation followed by a 10-year transition using the H-Model, and a 0.60x FY21F P/B multiple. Key assumptions include a WACC of 5.14% and terminal growth of 2.0%.
Key Risks to Our View:
The main risk to our investment thesis is the worsening of the COVID-19 situation, which could defer or deter any planned potential leisure travel, affecting FEO’s hospitality business.
64
84
104
124
144
164
184
204
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Jul-17 Jul-18 Jul-19 Jul-20 Jul-21
Relative IndexS$
Far East Orchard Limited (LHS) Relative STI (RHS)
DBS is supported by the Research Talent Development Grant Scheme
which aims to groom research talent to expand research coverage of
small-mid cap SGX listed companies
Page 2
Company Focus
Far East Orchard Limited
Table of Contents
Investment Summary 3
Valuation & Peers Comparison 9
Key Risks 11
SWOT Analysis 12
Critical Factors 13
Financials 15
Company Background 22
Management & Strategy 24
Page 3
Company Focus
Far East Orchard Limited
Investment Summary We are initiating coverage on Far East Orchard (FEOR
SP) with a BUY recommendation and TP of S$1.70. We
see deep value in FEO and compelling reasons for it to
trade at higher valuations. FEO’s share price has been weak
since March 2013 despite restructuring and improving
fundamentals. As FEO aims to continue expanding its
recurring income base, its current focus is to grow its
hospitality business and purpose-built student
accommodation (PBSA) portfolio, and we believe these will
support and drive a re-rating in its P/B multiple.
Our target price of S$1.70 is based on the average of (i) a
blend of its 10-year discounted cash flow (DCF) valuation
followed by a 10-year transition using the H-Model
(S$1.79), and (ii) 0.60x FY21F P/B multiple (S$1.62).
1) An Undiscovered Gem – Trading at a Deep
Discount despite Improving Fundamentals. Under its
current 5-year plan, FEOR 25, FEO aims to grow its
respectively hospitality and PBSA portfolios to 25,000
rooms and 5,000 beds by 2025, representing CAGR of 8.4%
and 7.0%. We believe that these two segments will be the
pillars that will support FEO’s growing recurring income
base over the next few years and are projecting FEO’s EBIT
to grow at a CAGR of 41.9% in the next two years.
Despite its improving fundamentals (more stable core EBIT
and clearer growth trajectory), FEO is currently trading at a
trailing 12-month (TTM) P/B multiple of 0.40x, which is at a
discount to its hospitality peers (0.81x), PBSA peers (0.64x),
and historical average (-0.54sd of its 4-year historical
mean). We believe its hospitality assets are comparable to
its peers, and with diversification and stability from its PBSA
portfolio, the stock should not trade at such a deep
discount.
2) PBSA Assets: Overtaking to be the Main Growth
Engine. In the last two years, FEO has more than doubled
the number of PBSA beds and it intends to continue
expanding its PBSA portfolio. The demand for full-time
higher education in the UK has been growing, especially
among foreign students. Furthermore, based on data from
Higher Education Statistics Agency (HESA), we estimate that
at least 58% of full-time higher education students in the
UK have to look for their own accommodation.
This asset class is largely resilient against economic
downturns and the UK universities have now allowed
students to return. Figures from Office of National Statistics
(ONS) show that 82% of students were in student
accommodation in April 2021 and FEO was able to achieve
an overall occupancy of over 80% for Academic Year (AY)
20/21.
We have pencilled in an acquisition of c.360 beds per year
from 2022 to 2025, financed by cash and debt, reaching its
goal of 5,000 PBSA beds by 2025. We are expecting EBIT
contribution from its PBSA segment to grow at a CAGR of
19.6% from FY20-25F and believe that its PBSA business
will be FEO’s main growth engine in the next few years.
3) Hospitality: On the Cusp of a Return of Leisure
Travel. FEO’s second pillar that will continue to support
and drive its recurring income is its hospitality portfolio,
and this segment is poised to benefit from the return of
leisure travel. The hospitality sector in Singapore is still
muted as it is heavily reliant on tourists. However, with
Singapore’s high vaccination rate and its discussions with
multiple countries on possible travel corridors, we can
“feel” the gradual return of leisure travel in Singapore.
FEO aims to add an additional c.8,500 hotel rooms by 2025
and these could be managed rooms as FEO will have to
conserve its cash to acquire PBSA assets. Based on our
estimates, an additional 8,500 managed hotel rooms would
translate to c.S$32m and c.S$7m additional revenue and
EBIT.
Key risks. The main risk to our investment thesis is a
worsening of the COVID-19 situation. This could defer or
deter any planned potential leisure travel, and impact FEO’s
hospitality business. Other risks include foreign exchange
rate risk and rising interest rate risks.
Page 4
Company Focus
Far East Orchard Limited
Investment Thesis 1) An Undiscovered Gem – Trading at a Deep
Discount Despite Improving Fundamentals
Weak share price despite improving fundamentals. Even
after announcing restructuring plans in 2012, Far East
Orchard’s (FEO SP) share price has been on a decline since
March 2013. We believe that investors have not accorded
FEO the right valuation despite the pivot away from its
reliance on property development income (where earnings
are lumpy by nature) and focusing on growing its recurring
income portfolio, which currently includes its hospitality
business, medical suites, and purpose-built student
accommodation (PBSA) assets.
FEOR 25 – Growing its hospitality and PBSA portfolios.
Presently, FEO is focused on growing its hospitality and
PBSA portfolios. In its current 5-year plan, FEOR 25, FEO
aims to grow its hospitality and PBSA portfolios to 25,000
rooms and 5,000 beds respectively, by 2025. This
represents a growth of 8.4% CAGR and 7.0% CAGR in
terms of number of operating units under the group. We
believe that these two segments will be pillars that will
support FEO’s growing recurring income base over the
next few years.
FEOR 25 – Target for Hospitality Rooms and PBSA
Beds
Source: Company, DBS Bank
EBIT Contribution by Business Segments*
Source: Company, DBS Bank
*Excludes Group corporate expenses
Trading at a significant discount to its hospitality pure play
peers. FEO is currently trading at a trailing 12-month (TTM)
P/B multiple of 0.40x, which is at a significant discount of
51% to its SGX-listed hospitality pure play peers. Although
FEO has a smaller market capitalisation and is not a
hospitality pure play, we believe that its portfolio of
hospitality assets is comparable (in quality) to that of its
larger SGX-listed peers and it should not trade at such a
deep discount compared to its peers.
Trading at a Discount to SGX-Listed Peers
Source: Bloomberg Finance L.P., Company, DBS Bank
Trading below peers and its 4-year historical P/B multiple.
FEO is also trading below than its peers, Centurion and
Singapore Press Holdings, which have exposure to PBSA
assets in the UK. In addition, the stock is trading at 0.41x
12-month forward P/B, which is -0.33sd of its 4-year
historical mean.
Trading at a Discount to its 4-Year Average P/B
Source: Bloomberg Finance L.P., Company, DBS Bank
16,700
3,561
25,000
5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Number of Hospitality
Rooms
Number of PBSA Beds
2020A 2025F
CAGR: 8.4%
CAGR: 7.0%
21.734.1
19.2 23.7
38.7
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
2018A 2019A 2020A 2021F 2022F
SG
D, M
illio
ns
Hospitality PBSA
Property Development Other Rental Income
CAGR: 41.9%
0.40
0.81
0.640.56
0.00
0.20
0.40
0.60
0.80
1.00
Far East
Orchard
Hospitality
Pure-Play
PBSA
Exposure
Property
Developers
(x)
TTM P/B
-2sd: 0.33
-1sd: 0.38
Avg: 0.43
+1sd: 0.48
+2sd: 0.53
0.30
0.35
0.40
0.45
0.50
0.55
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
Jul-17 Jul-18 Jul-19 Jul-20 Jul-21
(x)
SG
D
FEO's Share Price Forward P/B (RHS)
Page 5
Company Focus
Far East Orchard Limited
In our view, FEO’s valuation is attractive given its improving
fundamentals (more stable core EBIT and clearer growth
trajectory) and discount to peers and historical P/B
multiple. Although its share price has recovered slightly
since its plunge during the COVID-19 pandemic, we believe
that there is still a lot of upside for this undiscovered gem.
2) PBSA Assets: Overtaking to be the Main Growth
Engine
In recent years, FEO’s investments in PBSA assets in the UK
have been lucrative, in our view. It has more than doubled
the number of PBSA beds in the last two years. FEO
intends to continue growing its PBSA portfolio to reach
5,000 beds by 2025 and we believe that this will be the
main growth engine for FEO’s revenue and core EBIT over
the next few years.
Number of full-time higher education students in the UK
continues to increase. According to the Higher Education
Statistics Agency (HESA), the number of full-time students
enrolled in higher education programmes (undergraduates
and postgraduates) in the UK has increased 3.9% y-o-y in
AY19/20, reaching a new high of 2.015 million students.
This indicates demand for higher education in the UK
continues to rise.
Number of Full-Time Higher Education Students in
the UK
Source: HESA, DBS Bank
A large proportion of these students would require
accommodation. Based on the data available from HESA,
we estimate that at least 58% of full-time higher education
students in the UK require external accommodation. In
addition, the number of foreign students enrolled in full-
time higher education programmes in the UK has grown at
a much quicker CAGR of 6.5% in the past five years
compared to the 2.0% CAGR for domestic enrolment. This
indicates growing demand for student accommodation in
the UK.
Term-Time Accommodation of Higher Education
Students in the UK*
Source: HESA, DBS Bank
*Not in attendance at the provider and unknown accommodation
data are excluded
^Others includes short-term rental arrangements and others
Resilient asset class, student applications rise during the
COVID-19 pandemic. Despite the onset of the COVID-19
pandemic, the demand for higher education in the UK
remains strong, with applications (January deadline)
through the Universities and Colleges Admissions Service
(UCAS) increasing 8.5% y-o-y in 2021. We believe a part of
the reason for the increased applications could be due to
weakened economic environment leading to individuals
opting to pursue higher education.
Number of Applicants Through UCAS (January
Deadline)
Source: UCAS, DBS Bank
UK reverting to the norm, FEO’s PBSA portfolio achieved
healthy level of bookings for AY20/21. While there is still
some impact on the demand for student accommodation
due to restrictions on international travel, UK universities
have allowed students to return. Figures from the Office for
National Statistics (ONS) showed that 82% of students were
in their term time accommodation in April 2021. FEO was
1,383 1,435 1,471 1,482 1,497
403 412 432 459 518
1,785 1,848 1,903 1,940 2,015
0
500
1,000
1,500
2,000
2,500
AY15/16 AY16/17 AY17/18 AY18/19 AY19/20
Nu
mb
er
of
Stu
de
nts
, Th
ou
san
ds
UK Non-UK
598 639 673 685 712
468 491 507 512 536
594 598 600 618 637
1,785 1,848 1,903 1,940 2,015
0
500
1,000
1,500
2,000
2,500
AY15/16 AY16/17 AY17/18 AY18/19 AY19/20
Nu
mb
er
of
Stu
de
nts
, Th
ou
san
ds
Own Accommodation Student Accommodation
Others^ Unknown/Not in School
564,190 559,030 561,420 568,330616,360
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2017 2018 2019 2020 2021
Number of Applicants for the January Deadline
Page 6
Company Focus
Far East Orchard Limited
able to achieve an overall occupancy of over 80% for
AY20/21 and we believe will likely improve in the coming
years.
Sufficient cash reserves and gearing to acquire additional
PBSA assets. FEO currently has 12 PBSA assets with a total
valuation of S$559.7 million as at 31 December 2020. With
cash levels of S$278.4 million and gearing of 0.26x, we
believe FEO has sufficient cash and debt headroom to
acquire more PBSA assets, when the opportunity arises.
We have assumed that FEO acquires 360 beds (or c.1 PBSA
asset) per year from 2022 to 2025, financed by cash and
debt, reaching its goal of 5,000 PBSA beds by 2025.
Sufficient Cash Reserves and Gearing Headroom to
Acquire PBSA Assets
Source: Company, DBS Bank
Gearing Up to Expand its PBSA Portfolio
Source: Company, DBS Bank
EBIT contribution from PBSA to grow at a CAGR of 19.6%
from FY20-25F, if goals are achieved. There is significant
growth potential from this segment if FEO can achieve its
goals by 2025. In our estimates, we have assumed that the
acquisitions will be completed in the middle of each year,
and contribution from the new assets in that year will be
50% of its annual contribution. We are also assuming a
gradual recovery in the occupancy rates of FEO’s PBSA
assets from 80% in FY21F to 90% in FY25F and have
pencilled in a 3% y-o-y increase in the PBSA rental rates to
factor in inflation. Based on our assumptions and
estimates, we believe FEO’s PBSA portfolio’s EBIT could
grow at a CAGR of 19.6% from S$13.6m in FY20 to
S$33.1m in FY25F.
Projected PBSA Revenue and EBIT Contribution
Source: Bloomberg Finance L.P., Company, DBS Bank
Evolving to an PBSA asset play; FEO should re-rate higher.
We believe that its PBSA business segment will become a
core business and could even overtake its Hospitality
segment in EBIT contribution in the medium term. This
asset class is gaining traction among investors as the
demand for higher education in the UK has been growing
and the asset class is largely resilient against economic
downturns, as proven in the pandemic. The resilience in
earnings stream will be a key trait for the group going
forward, which in our view, supports a stable dividend pay-
out of at least c.6%.
Shift in Revenue and EBIT Contribution by
Segments
Source: Company, DBS Bank
46.6
278.40.26x
0.00x
0.05x
0.10x
0.15x
0.20x
0.25x
0.30x
0.0
50.0
100.0
150.0
200.0
250.0
300.0
Average
Valuation per
PBSA Asset
Cash and
Cash
Equivalents
Gearing
(Debt/Total
Assets) (RHS)
(x)
SG
D, M
illio
n
0
60 62 64 65
294260 256 243
220
0.27x 0.28x 0.29x 0.30x 0.31x
0.00x
0.05x
0.10x
0.15x
0.20x
0.25x
0.30x
0.35x
0
50
100
150
200
250
300
350
400
2021F 2022F 2023F 2024F 2025F
(x)
SG
D, M
illio
ns
Acquisition PBSA Assets Cash Gearing (RHS)
28.434.7
50.257.2
65.573.7
13.6 15.622.6 25.7
29.533.2
3,561 3,5613,921
4,2814,641
5,000
0
1,000
2,000
3,000
4,000
5,000
6,000
0.0
20.0
40.0
60.0
80.0
100.0
2020A 2021F 2022F 2023F 2024F 2025F
SG
D, M
illio
n
Revenue EBIT Number of Beds (RHS)
81.7%62.2% 56.9%
32.4%
12.2%33.3%
22.0%55.3%
6.1% 4.5%21.4% 12.3%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
2019A 2025F 2019A 2025F
Hospitality PBSA
Property Development Other Rental Income
EBITRevenue
Page 7
Company Focus
Far East Orchard Limited
3) Hospitality: On the Cusp of a Return of Leisure
Travel
FEO’s second pillar that will continue to support and drive
its recurring income is its hospitality portfolio, and this
segment is poised to benefit from the return of leisure
travel. FEO has two business models within its hospitality
segment – 1) Hospitality Management, and 2) Hospitality
Operations. Hospitality Operations forms the larger part of
the business and we believe FEO assumes more risk in its
Hospitality Operations as FEO owns or leases the asset in
this business model. FEO predominantly operates its
hospitality business in Singapore and Australia.
Estimated FY20 Hospitality Revenue Contribution
by Geography
Source: Company, DBS Bank
The hospitality sector in Singapore is still muted – heavily
reliant on tourists. Although the YTD average hotel room
rate for upscale hotels in Singapore is c.60% higher than
the lows last year (April-September), hotel room revenue in
Singapore remains relatively muted when compared to
pre-COVID levels. In 2019, Singapore averaged 1.6 million
visitors per month, and they collectively spent S$345
million on accommodation every month.
Hotel Room Revenue and Visitor Arrivals in
Singapore
Source: CEIC, Singapore Tourism Board, DBS Bank
Recovery in Hotel Room Rates and Occupancies
Source: CEIC, Singapore Tourism Board, DBS Bank
We can feel it – the gradual return of leisure travel in
Singapore is almost here! With the ongoing vaccination
programs globally and Singapore’s high vaccination rate,
we believe we are on the cusp of a return of leisure travel
in Singapore. Around 70% of Singapore’s residents have
received at least one dose of COVID-19 vaccine and c.40%
are fully vaccinated.
The Singapore government aims to have 75% of its
population fully vaccinated by October so that it can
gradually ease border restrictions as COVID-19 becomes
endemic over time. It has hinted of possible leisure travel
by year end and is in talks with various countries on re-
establishing leisure travel.
% of Population in Singapore Who Received at
Least One Dose of COVID-19 Vaccine
Source: Our World in Data
Singapore
S$38.9m
56%
Australia
S$25.1m
36%
Others
S$5.1m
8%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
0
50
100
150
200
250
300
Jun-19 Dec-19 Jun-20 Dec-20
SG
D p
er
Ro
om
pe
r N
igh
t
Average Hotel Room Rate in Singapore - Upscale
Average Occupancy - Upscale
0
200
400
600
800
0
100
200
300
400
500
Jun-19 Dec-19 Jun-20 Dec-20
Th
ou
san
ds
SG
D, M
illio
n
Hotel Room Revenue in Singapore
Visitor Arrivals in Singapore (RHS)
Page 8
Company Focus
Far East Orchard Limited
Singapore’s Potential Partners for Leisure Travel
Country Details
Australia Travel bubble timing pushed back
to end-2021
Hong Kong Mutual discussions on a possible
travel corridor South Korea
Taiwan
US Announced the potential of a travel
corridor EU
Source: Various news sources, DBS Bank
Strong pent-up demand for leisure travel. With travel
largely curtailed since early 2020, there is strong pent-up
demand for leisure travel. Employees are growing tired of
the recurring eat-work-sleep cycle with no “real break”. In
addition, the “borderless” work-from-home schemes are
exacerbating this “burn out”. We believe individuals will
make a grab for air tickets when leisure travel resumes as
they look towards leisure travel for a “real break”.
Hospitality sector in Australia may take more time.
Meanwhile, we believe that the situation in Australia may
take more time, mainly due to lower vaccination rates.
According to data from Our World in Data, c.27% of
Australia’s population has received at least one dose of
COVID-19 vaccine. Furthermore, Australia is not in talks
with other countries on potential travel bubbles apart from
Singapore and New Zealand.
% of Population in Australia Who Have Received At
Least One Dose of COVID-19 Vaccine
Source: Our World in Data
25,000 hotel rooms by 2025 – attention on its asset-light
hospitality management business. FEO aims to achieve
25,000 rooms by 2025 and in our view, the rooms could
come under asset-light hospitality management business.
We believe the main reason is that FEO will want to
conserve its cash to acquire PBSA assets. In addition, FEO
assumes less risk under the asset-light model as it is does
not own the asset and will typically be paid a fixed plus
variable management fee under this business model. Given
that it already has a large exposure to the hospitality sector
and with current travel restrictions in place, it will be
prudent to take less risk exposure to the sector.
An additional 8,500 managed hotel rooms by 2025 could
translate to c.S$32m and c.S$7m of additional revenue and
EBIT. In 2020, FEO managed and operated 16,555 hotel
rooms globally, with 5,000 rooms in Singapore. Its
Hospitality Management segment, which houses its
hospitality management business in Singapore, generated
S$18.8m and S$4.1m in revenue and EBIT in 2019 (pre-
COVID).
Given the current challenging operating environment, it
may be difficult for FEO to expand the number of managed
rooms under its hospitality management business.
Furthermore, management fees may vary across hotel tiers
and locations, and as such, we did not include the
additional revenue and EBIT into our projections.
Page 9
Company Focus
Far East Orchard Limited
Valuation & Peers Comparison Valuation
Initiate with a BUY recommendation and TP of S$1.70. We
see deep value in FEO and compelling reasons for it to
trade higher. Its share price action has been weak since
March 2013 despite restructuring and improving
fundamentals. It is currently focused on growing its
hospitality and PBSA portfolios, to support FEO’s expanding
recurring income base over the next few years and drive a
re-rating in its share price.
Our target price of S$1.70 is based on the average of (i) a
blend of its 10-year discounted cash flow (DCF) valuation
followed by a 10-year transition using the H-Model, and (ii)
0.60x FY21F P/B multiple.
Valuation Summary
Valuation Method Weight Target Price
10-Year DCF 50% S$1.79
FY21F P/B 50% S$1.62
Target Price S$1.70
Source: Bloomberg Finance L.P., Company, DBS Bank
Key Assumptions
We forecast FEO’s revenue and EBIT by its various business
segments: (1) Hospitality Management, (2) Hospitality
Operations, (3) PBSA, (4) Property Development, and (5)
Other Rental Income. Key assumptions include the average
daily rate for FEO’s hotels, occupancy rate, as well as the
number of PBSA beds, average weekly rent and occupancy
of its PBSA portfolio.
Our assumptions are conservative. For its hospitality
businesses, we have assumed a gradual recovery which will
really begin in FY22F as leisure travel resumes. For its PBSA
portfolio, we have assumed a linear increase in the number
of PBSA beds towards its goal of 5,000 beds by 2025 and a
3% y-o-y increase in its average weekly rental rates to
factor in inflation.
Selected Key Assumptions
Metric FY20A FY21F FY22F
Average daily rate of
FEO’s upscale
hotels in Singapore
(SGD per night)
158 190 218
Average occupancy
rate of FEO’s
upscale hotels in
Singapore
58.3% 53.3% 68.3%
Number of PBSA
Beds 3,561 3,561 3,921
Average weekly rent
for FEO’s PBSA
assets (GBP per
week per bed)
173 178 184
Average occupancy
rate for FEO’s PBSA
assets
80.0% 80.0% 83.0%
Source: CEIC, Singapore Tourism Board, Company, DBS Bank
Discounted Cash Flow Assumptions
Metric Value
Risk-free Rate 2.0%
Equity Risk Premium 7.4%
Beta 1.0
Cost of Equity 9.4%
Cost of Debt 2.0%
Proportion of Debt Financing 55.0%
Tax Rate 17.0%
WACC 5.14%
Peak of Transition Growth Rate 5.0%
Transition Growth Period 10 Years
Terminal Growth Rate 2.0%
Source: Bloomberg Finance L.P., Company, DBS Bank
P/B valuation pegged to 0.60x FY21F P/B. FEO is currently
trading at 0.40x FY21F P/B, which is at a significant discount
to its SGX-listed hospitality pure-play peer-average of 0.81x,
below its other PBSA peer-average of 0.64x, and -0.54sd its
4-year historical average. We believe its improving
fundamentals and a growth in its recurring income base
will drive a re-rating of its P/B multiple.
Page 10
Company Focus
Far East Orchard Limited
FEO’s 4-Year Forward P/B
Source: Bloomberg Finance L.P., Company, DBS Bank
Peer Comparison Table
Source: Bloomberg Finance L.P., Company, DBS Bank
-2sd: 0.33
-1sd: 0.38
Avg: 0.43
+1sd: 0.48
+2sd: 0.53
0.30
0.35
0.40
0.45
0.50
0.55
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
Jul-17 Jul-18 Jul-19 Jul-20 Jul-21
(x)
SG
D
FEO's Share Price Forward P/B (RHS)
P/B
FY21F FY22F TTM TTM FY21F
SGX-Listed Hospitality
FEOR SP Equity Far East Orchard Singapore 506 112.2 1.5 1.4% 831 2,619 0.32x 278.4 10.6% 22.0x 17.7x 0.40x 2.8% 2.8%
FEHT SP Equity Far East Hospitality Singapore 1,152 83.3 -93.4 -112.2% 989 2,581 0.38x 10.9 0.4% 33.1x 30.1x 0.74x 4.1% 4.6%
CDREIT SP Equity CDL Hospitality Singapore 1,498 117.6 -188.0 -159.9% 1,123 2,854 0.39x 126.6 4.4% 34.4x 25.3x 0.92x 4.1% 4.4%
FHT SP Equity Frasers Hospitality Singapore 992 88.6 -113.4 -128.1% 889 2,361 0.38x 72.0 3.1% 43.5x 27.3x 0.78x 2.4% 3.1%
Average 1,037 100.4 -98.3 -99.7% 958 2,604 0.37x 122.0 4.6% 33.2x 25.1x 0.71x 3.3% 3.7%
Average Ex-FEOR 1,214 96.5 -131.6 -133.4% 1,001 2,599 0.38x 69.9 2.6% 37.0x 27.6x 0.81x 3.5% 4.0%
SGX-Listed PBSA Exposure
CENT SP Equity Centurion Singapore 286 128.4 17.2 13.4% 850 1,542 0.55x 83.9 5.4% 14.7x 12.1x 0.47x N/A 2.9%
SPH SP Equity SPH Singapore 2,865 865.7 -83.7 -9.7% 3,477 8,850 0.39x 959.5 10.8% 24.2x 23.7x 0.80x 2.2% 3.3%
Average 1,575 497.0 -33.3 1.9% 2,163 5,196 0.47x 521.7 8.1% 19.5x 17.9x 0.64x 2.2% 3.1%
SGX-Listed Property Developers
CIT SP Equity City Developments Singapore 6,140 2,108.4 -1,917.4 -90.9% 11,807 23,677 0.50x 3,126.5 13.2% 21.1x 16.7x 0.75x 1.8% 2.0%
UOL SP Equity UOL Group Singapore 6,146 1,928.1 13.1 0.7% 5,132 20,373 0.25x 974.4 4.8% 18.0x 16.5x 0.63x 2.1% 2.3%
FPL SP Equity Frasers Property Singapore 4,464 3,597.0 188.1 5.2% 20,032 38,748 0.52x 2,361.5 6.1% 28.3x 26.2x 0.42x 1.3% 2.2%
GUOL SP Equity GuocoLand Singapore 1,858 941.8 114.1 12.1% 5,265 11,139 0.47x 998.3 9.0% 32.7x 31.9x 0.43x 3.8% 3.8%
Average 4,652 2,143.8 -400.5 -18.2% 10,559 23,484 0.44x 1,865.2 8.3% 25.0x 22.8x 0.56x 2.2% 2.6%
Dividend YieldDebt
(S$'m)
Total
Asset Gearing
Cash
(S$'m)
Cash as a % of
Total Assets
EV/EBITDA
Market Data Financial Data Valuation
Bloomberg Ticker Company NamePrimary
ExchangeMarket Cap (S$'m) Sales (S$'m)
Net Income
(S$'m)
Net Income
Margin (%)
Page 11
Company Focus
Far East Orchard Limited
Key Risks Worsening of COVID-19 could defer the gradual return of
leisure travel. While FEO’s PBSA business has largely
recovered, its hospitality business remains impacted as
leisure travel is still curtailed. While we believe that we are
on the cusp of a gradual return of leisure travel as
countries begin discussing travel bubbles and corridors, a
worsening of the pandemic could further defer or deter
such plans.
Foreign currency exchange rate risk. FEO owns assets and
has operations overseas. When it consolidates the
financials of its subsidiaries that have a functional currency
that is not SGD, it would incur foreign currency translation
gains and losses. In FY20, its largest revenue exposure (by
country) outside of Singapore is the UK. FEO considers the
use of currency swaps and forwards to manage its
currency risk.
FY20 Revenue by Geography
Source: Company, DBS Bank
Foreign Exchange Gains/(Losses)
Source: Company, DBS Bank
Interest rate risk. FEO uses bank borrowings to finance its
acquisitions and operations and is subject to rising interest
rate risk. As at 31 December 2020, it has S$683 million
worth of bank borrowings. The Group’s policy is to obtain
the most favourable interest rates available without
increasing its foreign currency exposure and manages cash
flow interest rate risks using floating-to-fixed rate swaps.
Interest Rate, EBITDA, and Bank Borrowings
Source: Company, DBS Bank
Singapore
SGD53.6m
48%
Australia
SGD25.1m
22%
New
Zealand
SGD3.8m
4%
United
Kingdom
SGD28.4m
25%
Others
SGD1.4m
1%
1.2
-8.9
-0.3 -1.9
11.6
65.0
21.8
32.926.0
1.5
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2016A 2017A 2018A 2019A 2020A
SG
D, M
illio
n
Foreign Exchange Gains/(Losses) Net Profit
4.5 4.3 5.2
16.9 17.1
24.7 26.5 26.1
50.3
29.8
203 222295
562
683
0
200
400
600
800
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2016A 2017A 2018A 2019A 2020A
SG
D, M
illio
n
SG
D, M
illio
n
Interest Expense EBITDA
Bank Borrowings (RHS)
Page 12
Company Focus
Far East Orchard Limited
SWOT Analysis
Strengths Weakness
• Recurring income base. Since its restructuring in 2012,
FEO has been building its recurring income stream
through its hospitality business, rental of medical suites
and PBSA assets. In the recent years, more than 90% of its
revenue is recurring.
• Resilient PBSA portfolio. Despite the onset of the COVID-
19 pandemic, the demand for higher education in the UK
remained strong, with applications rising by 8.5% y-o-y in
2021. FEO’s PBSA portfolio was able to achieve an overall
occupancy of over 80% for AY20/21.
• Strong and healthy balance sheet. As at 31 December
2020, FEO has a healthy gearing (debt/total assets) of
0.26x. It has cash amounting to S$278 million and
although it has bank borrowings worth S$683 million, it is
backed by S$1.6 billion of investment assets.
• Hospitality segment is heavily reliant on
international travel. FEO’s hospitality business is
predominantly in Singapore and Australia. The
hospitality sector in these two countries are reliant on
the international tourists.
Opportunities Threats
• Growing demand for higher education in the UK. The
number of full-time students enrolled in higher education
programmes in the UK has been growing, reaching a new
high of 2.015 million students in AY19/20. A large
proportion of these students require accommodation, and
this indicates a growing and lucrative market that FEO is
tapping into.
• Potential to add more managed hotel rooms. FEO
intends to add an additional 8,500 hotel rooms and we
believe that most of it could be managed. We estimate that
this could translate to an additional c.S$32m and S$7m in
revenue and EBIT.
• Worsening of COVID-19 could defer the gradual
return of leisure travel. This could defer and/or deter
any planned travel bubbles and corridors, further
delaying the recovery of FEO’s hospitality business.
• Foreign currency exchange rate risk. FEO owns and
operates assets outside of Singapore. In FY20, FEO’s
largest revenue exposure (by country) outside
Singapore is the UK. Fluctuations in foreign exchange
rates could result in currency translation
gains/(losses).
• Interest rate risk. FEO uses bank borrowings to
finance its acquisitions and operations and is subject
to rising interest rate risk. Higher interest rates would
translate to higher financing costs on these loans.
Source: DBS Bank
Page 13
Company Focus
Far East Orchard Limited
Critical Factors
Singapore hotel room revenue and tourist arrivals.
Singapore’s hospitality sector is heavily reliant on tourists.
Prior to COVID-19, the number of tourists in Singapore
grew at a CAGR 4.8%, from 13.2 million in 2011 to 19.1
million in 2019. Hotel room revenue in Singapore grew in
tandem at a CAGR of 4.7%, from S$2.9 billion in 2011 to
S$4.2 billion in 2019.
Due to the pandemic, the number of tourist arrivals and
hotel room revenue in Singapore plunged 85.7% and
70.9% y-o-y respectively. As a result, FEO’s hospitality
segment was significantly impacted as revenue declined
45.8% y-o-y in FY20.
Singapore’s Hotel Room Revenue and Visitor
Arrivals
Source: CEIC, Singapore Tourism Board, DBS Bank
Short-term visitors to Australia. FEO also has substantial
revenue exposure to the hospitality sector in Australia, and
we estimate that c.36% of its hospitality revenue is derived
from Australia. The COVID-19 pandemic has impacted
short-term visitors to Australia and Deloitte and STR Global
estimate that RevPAR in Australia had declined by 46.9% y-
o-y in 2020. We are expecting a slower recovery in
Australia’s hospitality sector given the relatively low
vaccination rates and lack of discussions of potential travel
bubbles with other countries.
Short-Term Visitors to Australia
Source: CEIC, Australia Bureau of Statistics, DBS Bank
Full-time higher education students in the UK and
accommodation data. The demand for higher education in
the UK has grown at a CAGR of 3.9% in the last five years,
and much of this demand is driven by foreign students.
This means that these students will inevitably have to
source for accommodation. Using data from HESA, we
estimate that the number of full-time and sandwich
students that needed accommodation was c.58% of the
total in 2020.
Number of Higher Education Students in the UK by
Domicile
Source: HESA, DBS Bank
0
100
200
300
400
500
600
700
0
100
200
300
400
500
Jun-19 Dec-19 Jun-20 Dec-20
Th
ou
san
ds
SG
D, M
illio
n
Hotel Room Revenue in Singapore
Visitor Arrivals in Singapore (RHS)
0
200
400
600
800
1,000
1,200
May-19 Nov-19 May-20 Nov-20
Th
ou
san
ds
Short-Term Visitors to Australia
1,383 1,435 1,471 1,482 1,497
403 412 432 459 518
1,785 1,848 1,903 1,940 2,015
0
500
1,000
1,500
2,000
2,500
AY15/16 AY16/17 AY17/18 AY18/19 AY19/20
Nu
mb
er
of
Stu
de
nts
, Th
ou
san
ds
UK Non-UK
Page 14
Company Focus
Far East Orchard Limited
Number of Higher Education Students in the UK by
Accommodation
Source: HESA, DBS Bank
Number of PBSA beds. In 2020, FEO had 3,561 PBSA beds.
Its PBSA portfolio averaged an occupancy rate of over 80%
and generated S$28.4 million of revenue in FY20. We are
expecting revenue from its PBSA segment to grow in
tandem as FEO grows its number of PBSA beds to 5,000 by
2025.
Revenue from PBSA Segment and Number of PBSA
Beds
Source: Company, DBS Bank
598 639 673 685 712
468 491 507 512 536
594 598 600 618 637
1,785 1,848 1,903 1,940 2,015
0
500
1,000
1,500
2,000
2,500
AY15/16 AY16/17 AY17/18 AY18/19 AY19/20
Nu
mb
er
of
Stu
de
nts
, Th
ou
san
ds
Own Accommodation Student Accommodation
Others^ Unknown/Not in School
5.8 5.7 7.4
19.1
28.4
34.7
50.2
612
1,1741,469
3,2603,561 3,561
3,921
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2016 2017 2018 2019 2020 2021 2022
SG
D, M
illio
n
PBSA Revenue Number of PBSA Beds
Page 15
Company Focus
Far East Orchard Limited
Financials
Income Statement
More than 90% of revenue is recurring. After its
restructuring initiative in 2012, FEO’s revenue has in recent
years come from recurring sources such as its hospitality
businesses, and rental of PBSA assets and other assets.
While the COVID-19 pandemic had impacted revenue in
FY20, we are expecting a gradual recovery, driven mainly by
rental income from its PBSA assets.
FEO’s Revenue by Segment
Source: Company, DBS Bank
EBIT to be largely driven by PBSA segment. As FEO gears
up and acquires more PBSA beds following its FEOR 25
plan, our projections show that it will be the main driver of
FEO’s EBIT in the next few years.
FEO’s EBIT by Segment
Source: Company, DBS Bank
Employee expenses and depreciation are the two largest
operating cost items. As FEO is an asset owner and
operator, employee salaries and depreciation are the two
largest costs to its business, accounting for c.48.3% of its
expenses in FY20.
FY20 Operating Expenses
Source: Company, DBS Bank
Balance Sheet
Healthy balance sheet, expecting gearing to increase. As at
31 December 2020, FEO has cash and cash equivalents of
S$278 million and a total debt of S$683 million. It also has
S$1.6 billion in investment assets (properties held for sale,
investment properties, and PPE). FEO’s gearing levels
(debt/total assets) are healthy at 0.26x as at end-2020.
Going forward, we’re expecting gearing to increase as it
acquires more PBSA beds in the UK.
Cash, Investment Assets, Debt, and Gearing
Source: Company, DBS Bank
150.9 156.1
112.2129.6
155.2
0.0
50.0
100.0
150.0
200.0
2018A 2019A 2020A 2021F 2022F
SG
D, M
illio
n
Hospitality Management Hospitality Operations
PBSA Property Development
Other Rental Income
21.7
34.1
19.223.7
38.7
0.0
10.0
20.0
30.0
40.0
2018A 2019A 2020A 2021F 2022F
SG
D, M
illio
n
Hospitality Management Hospitality Operations
PBSA Property Development
Other Rental Income
Employee
Expenses
29%
Depreciation
19%
Property Tax and Upkeep Expenses
12%
Cost of
Medical Suite
Sold
6%
Other
Operating
Expenses
34%
256 257 278 294 260295
562683 708 737
1,179
1,579 1,631 1,611 1,651
0.14x
0.22x
0.26x 0.27x 0.28x
0.00x
0.05x
0.10x
0.15x
0.20x
0.25x
0.30x
0
500
1,000
1,500
2,000
2,500
2018A 2019A 2020A 2021F 2022F
SG
D, M
illio
n
Cash Debt
Investment Assets Gearing (D/TA)
Page 16
Company Focus
Far East Orchard Limited
Cash Flow Statement
FEO’s main cash flow expenditure are capex and dividends.
FEO’s business is generally cash flow generative, with the
exception of working capital injection when it has
development projects. In the last three years, its main cash
outlays are for the acquisition of investment properties
(PBSAs) and dividends and it finances these acquisitions by
raising debt. In the next few years, we are projecting more
cash outflows for its PBSA asset acquisitions.
Main Cash Flow Items
Source: Company, DBS Bank
-7
32 19 25 43
-22
-240
-73-2
-62-8 -25 -9 -14 -27
86
259
109
25 29444 15 16
-35
-300
-200
-100
0
100
200
300
2018A 2019A 2020A 2021F 2022F
SG
D, M
illio
n
Operating Cash Flow Capex
Dividends Cash from Debt
Change in Cash
Page 17
Company Focus
Far East Orchard Limited
Segmental Breakdown
FY Dec 2017A 2018A 2019A 2020A 2021F 2022F Revenues (S$m)
Hospitality
Management 16.1 16.6 18.8 14.1 12.6 14.6
Hospitality Operations 121 117 109 55.0 61.9 81.2
PBSA 5.69 7.45 19.1 28.4 34.7 50.2
Property Development 0.0 0.24 0.0 6.56 11.9 0.0
Others 9.14 9.31 9.46 8.12 8.61 9.16
Total 152 151 156 112 130 155
Operating Profit
(S$m)
Hospitality
Management 2.65 2.98 4.11 0.98 1.00 1.46
Hospitality Operations 10.4 8.06 15.3 (1.7) 0.08 8.05
PBSA 0.0 0.0 7.49 13.6 15.6 22.6
Property Development 0.17 0.38 (0.1) 0.57 0.95 0.0
Others 9.47 10.2 7.30 5.83 6.02 6.59
Total 22.7 21.7 34.1 19.2 23.7 38.7
Operating Profit
Margins (%)
Hospitality
Management 26.7 16.0 15.8 29.2 7.8 6.9
Hospitality Operations 10.4 8.9 7.4 27.8 (2.8) 0.1
PBSA 0.0 0.0 0.0 26.4 39.1 31.1
Property Development N/A 71.8 N/A (1.4) 4.8 N/A
Others 80.0 101.7 108.3 89.8 67.8 65.8
Total 15.7 15.1 13.9 30.4 14.8 15.3
Source: Company, DBS Bank
Page 18
Company Focus
Far East Orchard Limited
Income Statement (S$m)
FY Dec 2017A 2018A 2019A 2020A 2021F 2022F
Revenue 152 151 156 112 130 155
Cost of Goods Sold (99.4) (97.5) (88.3) (67.8) (69.0) (74.6)
Gross Profit 52.2 53.4 67.8 44.5 60.6 80.6
Other Opng (Exp)/Inc (40.0) (40.7) (42.2) (38.4) (43.4) (49.7)
Operating Profit 12.2 12.7 25.6 6.11 17.2 30.9
Other Non Opg
(Exp)/Inc
0.43 11.2 10.5 1.71 0.0 0.0
Associates & JV Inc 14.5 12.9 6.38 (5.5) (2.6) 2.59
Net Interest (Exp)/Inc (1.4) (1.2) (12.5) (14.5) (14.3) (15.6)
Exceptional Gain/(Loss) 0.0 0.0 0.0 8.84 0.0 0.0
Pre-tax Profit 25.7 35.7 29.9 (3.4) 0.20 17.9
Tax (3.7) (2.2) (4.2) (5.6) 0.0 (3.1)
Minority Interest (0.3) (0.5) 0.25 10.5 0.0 (0.5)
Preference Dividend 0.0 0.0 0.0 0.0 0.0 0.0
Net Profit 21.8 32.9 26.0 1.54 0.16 14.3
Net Profit before
Except. 21.8 32.9 26.0 (7.3) 0.16 14.3
EBITDA 41.4 50.2 67.1 26.0 39.4 58.4
Growth
Revenue Gth (%) (18.0) (0.5) 3.4 (28.1) 15.5 19.7
EBITDA Gth (%) (54.3) 21.3 33.7 (61.3) 51.4 48.4
Opg Profit Gth (%) 11.5 4.2 101.6 (76.1) 181.1 80.0
Net Profit Gth (Pre-ex)
(%) (66.6) 51.4 (21.0) nm nm 8,652.1
Margins & Ratio
Gross Margins (%) 34.4 35.4 43.5 39.6 46.8 51.9
Opg Profit Margin (%) 8.0 8.4 16.4 5.4 13.3 19.9
Net Profit Margin (%) 14.3 21.8 16.7 1.4 0.1 9.2
ROAE (%) 1.8 2.6 2.1 0.1 0.0 1.2
ROA (%) 1.0 1.6 1.1 0.1 0.0 0.5
ROCE (%) 1.0 1.6 0.6 (0.9) (0.6) (0.1)
Div Payout Ratio (%) 117.3 79.6 101.0 888.5 8,343.9 190.7
Net Interest Cover (x) 8.7 10.6 2.0 0.4 1.2 2.0
Source: Company, DBS Bank
Margins Trend
0.0%
5.0%
10.0%
15.0%
20.0%
2018A 2019A 2020A 2021F 2022F
Operating Margin % Net Income Margin %
Government grants
Page 19
Company Focus
Far East Orchard Limited
Interim Income Statement (S$m)
FY Dec 1H1H 2H2018 1H2019 2H2019 1H2020 2H2020
Revenue 75.2 75.7 75.3 80.8 64.9 47.3
Cost of Goods Sold (48.2) (49.3) (42.9) (45.4) (38.7) (29.1)
Gross Profit 27.1 26.3 32.4 35.4 26.2 18.2
Other Oper. (Exp)/Inc (19.7) (21.0) (20.4) (21.8) (25.5) (12.8)
Operating Profit 7.35 5.34 11.9 13.7 0.72 5.39
Other Non Opg
(Exp)/Inc
(3.4) 14.7 (1.8) 12.3 3.45 (1.8)
Associates & JV Inc 6.11 6.83 3.39 2.99 (6.0) 0.49
Net Interest (Exp)/Inc (0.5) (0.7) (6.1) (6.4) (7.2) (7.3)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 4.18 4.66
Pre-tax Profit 9.52 26.1 7.36 22.6 (4.8) 1.48
Tax (0.5) (1.7) (2.0) (2.1) (1.1) (4.4)
Minority Interest 0.18 (0.7) 0.48 (0.2) 5.11 5.34
Net Profit 9.22 23.7 5.81 20.2 (0.9) 2.39
Net profit bef Except. 9.22 23.7 5.81 20.2 (5.0) (2.3)
EBITDA 10.0 26.8 13.5 29.0 (1.8) 4.13
Growth
Revenue Gth (%) (50.4) 0.6 (0.5) 7.4 (19.6) (27.2)
EBITDA Gth (%) (63.0) 167.5 (49.7) 114.6 nm nm
Opg Profit Gth (%) (39.7) (27.3) 123.5 14.3 (94.7) 647.9
Net Profit Gth (%) (57.6) 157.1 (75.5) 248.2 (104.2) (380.3)
Margins
Gross Margins (%) 35.9 34.8 43.0 43.8 40.4 38.5
Opg Profit Margins (%) 9.8 7.1 15.9 16.9 1.1 11.4
Net Profit Margins (%) 12.3 31.3 7.7 25.0 (1.3) 5.1
Source: Company, DBS Bank
Page 20
Company Focus
Far East Orchard Limited
Balance Sheet (S$m)
FY Dec 2017A 2018A 2019A 2020A 2021F 2022F Net Fixed Assets 545 537 661 635 615 595
Invts in Associates & JVs 495 495 466 500 497 500
Other LT Assets 645 666 945 998 995 1,053
Cash & ST Invts 375 421 432 457 473 438
Inventory 0.33 0.35 0.32 0.27 0.30 0.32
Debtors 27.5 26.1 26.7 28.5 31.9 38.1
Other Current Assets 0.0 0.0 0.0 0.0 0.0 0.0
Total Assets 2,087 2,145 2,531 2,619 2,613 2,624
ST Debt
180 208 336 283 283 295
Creditor 116 120 114 105 112 121
Other Current Liab 15.0 12.3 28.3 25.8 20.4 23.4
LT Debt 41.7 87.0 225 400 425 442
Other LT Liabilities 455 421 556 545 527 509
Shareholder’s Equity 1,244 1,265 1,249 1,241 1,227 1,214
Minority Interests 35.8 31.3 22.2 18.6 18.6 19.1
Total Cap. & Liab. 2,087 2,145 2,531 2,619 2,613 2,624
Non-Cash Wkg. Capital (103) (106) (115) (103) (99.8) (106)
Net Cash/(Debt) 153 126 (129) (226) (235) (299)
Debtors Turn (avg days) 73.1 64.8 61.7 89.7 85.0 82.3
Creditors Turn (avg
days) 531.0 511.7 672.2 906.7 896.6 852.3
Inventory Turn (avg
days) 1.5 1.5 1.9 2.4 2.3 2.3
Asset Turnover (x) 0.1 0.1 0.1 0.0 0.0 0.1
Current Ratio (x) 1.3 1.3 1.0 1.2 1.2 1.1
Quick Ratio (x) 1.3 1.3 1.0 1.2 1.2 1.1
Net Debt/Equity (X) CASH CASH 0.1 0.2 0.2 0.2
Net Debt/Equity ex MI
(X) CASH CASH 0.1 0.2 0.2 0.2
Capex to Debt (%) 1.6 1.6 39.3 0.2 0.3 0.3
Source: Company,
Asset Breakdown
Net Fixed Assets -44.1%
Assocs'/JVs -34.7%
Bank, Cash and Liquid
Assets -19.3%
Inventory -0.0%
Debtors -2.0%
Page 21
Company Focus
Far East Orchard Limited
Cash Flow Statement (S$m)
FY Dec 2017A 2018A 2019A 2020A 2021F 2022F
Pre-Tax Profit 25.7 35.7 29.9 (3.4) 0.20 17.9
Dep. & Amort. 14.3 13.4 24.7 23.6 24.8 24.9
Tax Paid (3.4) (6.3) (3.0) (2.1) (5.4) 0.0
Assoc. & JV Inc/(loss) (14.5) (12.9) (6.4) 5.47 2.64 (2.6)
Chg in Wkg.Cap. (14.8) (29.2) (12.6) (17.5) 2.68 2.74
Other Operating CF 1.56 (7.3) (0.8) 13.2 0.0 0.0
Net Operating CF 8.90 (6.8) 31.8 19.3 24.9 42.9
Capital Exp.(net) (3.5) (4.6) (220) (1.6) (2.0) (2.0)
Other Invts.(net) (37.3) (17.1) (19.9) (71.7) 0.0 (60.0)
Invts in Assoc. & JV 38.4 (41.1) (2.4) (7.9) 0.0 0.0
Div from Assoc & JV 14.1 36.8 6.69 1.39 0.0 0.0
Other Investing CF 2.94 4.86 2.41 3.59 0.0 0.0
Net Investing CF 14.7 (21.2) (234) (76.3) (2.0) (62.0)
Div Paid (21.6) (8.2) (24.8) (9.1) (13.7) (27.3)
Chg in Gross Debt 16.0 85.6 259 109 24.6 29.3
Capital Issues 0.0 0.0 0.0 0.0 0.0 0.0
Other Financing CF (7.0) (5.9) (29.1) (28.2) (17.7) (17.7)
Net Financing CF (12.6) 71.5 206 71.7 (6.8) (15.8)
Currency Adjustments (0.6) (6.8) (2.6) 6.29 0.0 0.0
Chg in Cash 10.3 36.7 1.14 21.0 16.1 (35.0)
Opg CFPS (S cts) 5.57 5.14 10.1 8.07 4.88 8.81
Free CFPS (S cts) 1.27 (2.6) (43.0) 3.88 5.03 8.98
Source: Company,
Capital Expenditure
0.0
50.0
100.0
150.0
200.0
250.0
2018A 2019A 2020A 2021F 2022F
Capital Expenditure (-)
S$ m
Capex for the
acquisition of PBSA
beds
Acquisition of PBSA
beds
Page 22
Company Focus
Far East Orchard Limited
Company Background
Corporate Background
Far East Orchard (FEOR SP) is a real estate company with a
lodging platform that aims to achieve sustainable and
recurring income through a diversified and balanced
portfolio. It is involved in the hospitality sector through its
partnerships with The Straits Trading Company and Toga
Group. FEO also has a purpose-built student
accommodation (PBSA) portfolio in the UK and a portfolio
of purpose-built medical suites in Singapore. It is also
involved in the development of properties.
FEO is a member of Far East Organization, Singapore’s
largest private property developer has been listed on the
Mainboard of the Singapore Exchange since 1968.
Corporate history. FEO was incorporated as Ming Court
Limited in 1967. It was then acquired by Far East
Organization in 1987 and renamed Orchard Parade
Holdings Limited in 1991. In July 2012, it restructured and
expanded into hospitality management and healthcare real
estate and rebranded itself as Far East Orchard Limited.
Business Operations
Far East Orchard has four businesses: (1) Hospitality, (2)
Student Accommodation, (3) Property Development, and
(4) Property Investments.
1. Hospitality – FEO’s hospitality arm, Far East Hospitality
Holdings (FEHH), is a 70-30 joint venture with The
Straits Trading Company. FEHH has a 50-50 joint
venture with Toga Group.
2. Student accommodation – Rental of PBSA assets in
the UK.
3. Property Development – Includes property
development projects and unsold completed
properties.
4. Property Investment – Portfolio of purpose-built
medical suites for lease and for sale in Singapore’s
premier medical hub in Novena.
Core operating regions are Singapore, Australia, and the
UK. FEO derives a substantial portion of its revenue from
these three geographies, with Singapore being the largest
contributor. In the last three years, these three regions
accounted for more than 90% of FEO’s revenue.
FY20 Revenue by Geography
Source: Company, DBS Bank
Business Operations by Geography
Geography Core Business Operations
Singapore
• Hotel operations
• Property development
• Property investment
• Property ownership
Australia • Hotel operations
• Property ownership
New Zealand • Hotel operations
United Kingdom • Student accommodation
Other countries
• Hotel operations (Malaysia)
• Property ownership (Malaysia,
Germany, Denmark, and Japan)
Source: Company, DBS Bank
Core Operating Assets
Hospitality – owns more than 10 hospitality assets and
manages over 100 properties. FEO owns more than 10
hospitality assets and manages over 100 properties with
more than 16,500 rooms in Australia, Denmark, Germany,
Hungary, Japan, Malaysia, New Zealand, and Singapore. Its
portfolio of brands includes Oasia, Quincy, Rendezvous,
Village, Far East Collection, Adina Apartment Hotels and
Adina Serviced Apartments, Vibe Hotels, Travelodge Hotels,
and TFE Hotels Collection.
Student accommodation – 12 PBSA assets with more than
3,500 beds. FEO’s PBSA portfolio is located in the UK and
comprises 3,500 beds in the cities of Brighton, Bristol,
Leeds, Liverpool, Newcastle upon Tyne, and Sheffield.
Property investment – portfolio of purpose-built medical
suites in Singapore. FEO owns 44 medical suites at Novena
Medical Center and 39 medical suites at Novena Specialist
Center.
Singapore
SGD53.6m
48%
Australia
SGD25.1m
22%
New
Zealand
SGD3.8m
4%
United
Kingdom
SGD28.4m
25%
Others
SGD1.4m
1%
Page 23
Company Focus
Far East Orchard Limited
Operating Assets
Source: Company, DBS Bank
Dividend Policy and History
No dividend policy; strives for consistent and sustainable
dividends. FEO is committed to achieving sustainable
income and long-term capital growth. While it does not
have a dividend policy, it will strive to provide consistent
and sustainable ordinary dividend payments to its
shareholders on an annual basis. In the past five years,
excluding FY20, FEO has paid a consistent dividend of
SGD6.0 cents per share.
Dividend History
Source: Company, DBS Bank
6.0 6.0 6.0 6.0
3.0
0.0%
200.0%
400.0%
600.0%
800.0%
1000.0%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2016A 2017A 2018A 2019A 2020A
SG
D, C
en
ts
Dividend per Share (LHS) Dividend Payout Ratio
Page 24
Company Focus
Far East Orchard Limited
Management & Strategy
Key Executives and Management
Name Background and Experiences
Koh Boon Hwee
Chairman
Mr Koh Boon Hwee is the Chairman of Far East Orchard. He also holds various high-
ranking positions at other firms such the Chairman of Agilent Technologies, a
company listed on the New York Stock Exchange, the Chairman of Rippledot Capital
Advisors, and a Director at Bank Pictet & Cie (Asia), to name a few.
Mr Koh started his career in 1977 at Hewlett Packard and rose to become its
Managing Director in Singapore. He then went on to occupy various key executive
and non-executive positions at many firms.
Mr Koh graduated from Imperial College with a Bachelor of Science (Mechanical
Engineering), First Class Honours, in 1972, and obtained a Masters in Business
Administration with Distinction from Harvard Business School in 1976.
Alan Tang Yew Kuen
Group Chief Executive Officer
Mr Alan Tang Yew Kuen was appointed as the Group Chief Executive Officer of Far
East Orchard in January 2020. He is currently also the Chairman for Far East
Hospitality Holdings.
Mr Tang was a Senior Vice President, and the Head of Hospitality at GIC Real Estate.
During his tenure at GIC Real Estate, he oversaw both direct and indirect equity and
debt investments, as well as both private and public-listed entities. Prior to joining
FEO, Mr Tang was the Chief Operating Officer of Frasers Hospitality International Pte
Ltd, where he led the operations of hotels and serviced apartments globally.
Mr Tang received a Bachelor of Science (Distinction) in 1992 from the School of Hotel
Administration, Cornell University. He is also a Chartered Financial Analyst holder.
Joanna Gok Yin Yin
Chief Financial Officer
Ms Joanna Gok Yin Yin was appointed as the Chief Financial Officer in January 2018.
She leads the finance team and is responsible for business ventures, strategic
partnerships, risk management, investor relations, and overall financial matters of
the Group.
Ms Gok joined FEO in 2012 and held various managerial positions before her
appointment as Chief Financial Officer. Prior to joining FEO, she was the Chief
Financial Officer of Newage Investment Holding Pte Ltd, which owns hotels and office
buildings in Jakarta.
Ms Gok holds a Bachelor of Accountancy (Honours) from the Nanyang Technological
University and is a Chartered Accountant of the Institute of Singapore Chartered
Accountants.
Source: Company, DBS Bank
Corporate Strategy
Build recurring income streams. Since its transformation
journey began in 2012, Far East Orchard has sought to
reduce its reliance on property development income, by
building recurring income streams.
Growth engine one – regional hospitality business. FEO
intends to continue growing its hospitality portfolio through a
combination of management contracts and leases, along
with strategic partnerships and acquisitions where
appropriate. It aims to have more than 150 properties with
over 25,000 rooms under its hospitality management
portfolio by 2025.
Growth engine two – PBSA portfolio. FEO’s focus continues to
be on cities in the UK with high-tariff universities and strong
student growth. It aims to achieve 5,000 PBSA beds by 2025.
Page 25
Company Focus
Far East Orchard Limited
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 26 Jul 2021 06:31:08 (SGT)
Dissemination Date: 25 Jul 2021 15:50:15 (SGT)
Sources for all charts and tables are DBS Bank unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and
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The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers
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agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or
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The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates
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estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary
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described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with
the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or
risk assessments stated therein.
Page 26
Company Focus
Far East Orchard Limited
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
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ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part
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not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of
the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty
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COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have proprietary
positions in Far East Hospitality Trust, CDL Hospitality Trusts, Frasers Hospitality Trust, Genting Singapore, SPH, City Developments, UOL
Group, recommended in this report as of 30 Jun 2021.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.
3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued
share capital in Frasers Hospitality Trust, recommended in this report as of 30 Jun 2021.
4. DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA or their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of
common equity securities of Frasers Hospitality Trust, as of 30 Jun 2021.
Compensation for investment banking services:
5. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12
months for investment banking services from City Developments, Frasers Property Limited as of 30 Jun 2021.
7. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of
securities for City Developments, Frasers Property Limited, in the past 12 months, as of 30 Jun 2021.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust
of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another
person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an
issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or
analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme
other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer
or a new listing applicant.
Page 27
Company Focus
Far East Orchard Limited
8. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities
as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to
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discussed in this document should contact DBSVUSA exclusively.
Directorship/trustee interests:
9. Olivier Lim Tse Ghow, a member of DBS Group Management Committee, is a Advisor of Frasers Property Limited as of 30 Jun 2021.
Disclosure of previous investment recommendation produced:
9. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the
preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment
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Page 28
Company Focus
Far East Orchard Limited
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Page 29
Company Focus
Far East Orchard Limited
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