Interview: China, Australia Still Lynchpins For FAR EAST

THE GLITTER MAY have faded from Australia's commodities heydays and China's recent GDP growth is a shadow of its decade-ago former self, but the two countries remain the best near-term growth opportunities for Far East Consortium International Ltd (00035), a top executive told Asia Fund Space.

The diversified property play announced its interim results in Hong Kong on 26 November that while on paper looked a bit offsetting, management reassured investors that its project pipeline remained potent, with a high level of project and geographic diversity seldom seen among peers.

"That is in fact one of our top investment merits - the various markets and real estate categories that all contribute to our top line.

"And we also think longer term and don't jump at regional upticks in local market conditions," Far East Consortium Managing Director Mr. Chris Hoong told Asia Fund Space on the sidelines of the results briefing.

He pointed to Shenzhen in particular, which had seen rapid new home price growth of late, adding that the Hong Kong listco's presence in neighboring Guangzhou was quite solid.

For the April-September half - the firm's 1H FY2016 period -- revenue and gross profit decreased by 35.9% and 27.4%, respectively, to approximately 1.857 billion hkd and 629 million.

Management said interim results were affected by adverse currency exchange rate movements, lower booking of residential sales and lower contribution from its hotel division in 1H FY2016.

The half-year gross profit margin improved to 33.8% from 29.9% a year prior.

Meanwhile, interim net profit declined to approximately 263 million hkd (1H FY2015: 401 million).

Far East Consortium's bank and cash balances and investment securities rose to approximately 3.8 billion hkd as at 30 September 2015 (3.5 billion as at 31 March 2015), providing a "strong war chest" for business expansion, and net debts as at 30 September 2015 decreased to approximately 5.6 billion hkd from 6.3 billion as at 31 March 2015, management added.

That led to the net gearing ratio declining to 26.7% as at 30 September 2015 (29.8% as at 31 March 2015).

Interim dividend for 1H FY2016 was maintained at three HK cents per share.

The company said the recent privatization of Dorsett became effective on 14 October 2015, and the transaction "strengthens the Group's balance sheet and increases the Group's exposure to the significant growth potential in the tourism sector."

"Both Australia and the PRC remain very attractive long-term markets for us and the recent weakness of the Australian dollar in particular is allowing us to see more investors taking advantage of investment opportunities down under.

"In fact, the Australian government is encouraging a shift away from a recent overreliance on mining industries and is therefore encouraging more economic diversification, with tourism being a key area, and thus our diversified property investments in particular there are especially welcome given the number of jobs that new hotels, for example, bring to a region," Mr. Hoong told Asia Fund Space.

For the recently-completed half year, 52% of Far East's revenue was derived from Australia alone, with 20% coming from Hong Kong and 15% from the PRC.

Over the same period, property sales contributed 48% to the top line, with hotel operations/management adding 34% and car park businesses standing at 16%.

"Even though the PRC economy is recovering faster than Australia, however slow it may be, any increased attention we might pay to Mainland China going forward will not signify any de-emphasis on our part concerning the Australian market," Mr. Hoong added.

Far East Consortium's revenue from sales of properties amounted to approximately 889 million hkd in 1H FY2016, a year-on-year decrease of 51.1%.

During 1H FY2016, two projects were completed, namely Upper West Side, Midtown (Stage 3) in Melbourne and View Pavilion in Shanghai.

"In general, contributions from non-Hong Kong operations were affected by adverse currency movement of foreign currencies against Hong Kong dollar.

"Looking ahead, with a strong war chest, we believe we are well-positioned to deliver long term growth, and now that Dorsett is now wholly owned by the Group, this will enable us to benefit more fully from the significant growth potential of the tourism industry in Asia," added Far East Consortium CFO and Company Secretary Mr. Boswell Cheung.

Far East Consortium International Limited, through its subsidiaries, develops and invests in real estate. The Company also operates hotels.
 
(Note: This story is contributed by Andrew Vanburen. Mr. Vanburen has served as a
government official focused on international trade at the American Institute of Taiwan in
Taipei, and worked in financial journalism for nearly a decade in both Beijing and
Shenzhen. He holds a Master's Degree from New York University. He is currently Director at
Hong Kong-based Asia Fund Space. For more information, please visit:
www.asiafundspace.com)