- June 18, 2021
We have published a Research on Far East Consortium (35.HK), reiterating our buy rating, on the back of its recent sale of its Dorsett City London Hotel.
Key Highlights:
We believe the recent sale of the Dorsett City London Hotel proves that the asset values of FEC’s portfolio remains intact and thus the stock is undervalued. The GBP50m gain to be recognized in FY22E beats our expectations and could lift our FY22E EBIT by ~18%. As a result, we expect the stock will re-rate to a narrower Disc. to NAV. Reiterate Buy.
- Sold at GBP115m, we believe that the valuation of the transaction is on par with valuations before COVID-19. Based on our calculations, it implies a net yield of 5.3% based on a normalized, pre-COVID19, FY19-FY20 operating profit.
- This sale will generate a GBP50m gain to be recognized in FY22E, marking a profit margin of ~43%.
- As a Global Property Developer, we believe the sale is part of FEC’s normal course of business.
- The stock is currently trading at attractive valuations of 63% Disc. to NAV and implying a 7.6x FY21E P/E or 5.2x FY22E P/E.
- The stock is offering a 7.5% FY21E dividend yield.
- We maintain our target price of HK$4.09, which offers a 39% upside to the current share price.
