Singapore Company Focus Far East Orchard Limited

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.

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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


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


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*


*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


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


(x)

SG

D

FEO's Share Price Forward P/B (RHS)

Page 5

Company Focus


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*


*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


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


Gearing Up to Expand its PBSA Portfolio


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


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


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


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


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


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


Th

ou

san

ds

SG

D, M

illio

n

Hotel Room Revenue in Singapore

Visitor Arrivals in Singapore (RHS)

Page 8

Company Focus


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


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


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%


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


FEO’s 4-Year Forward P/B


Peer Comparison Table


-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


(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


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


Foreign Exchange Gains/(Losses)


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


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


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


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


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


0

100

200

300

400

500

600

700

0

100

200

300

400

500


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


Number of Higher Education Students in the UK by

Accommodation


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


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


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


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


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


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


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


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


-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


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


Page 18

Company Focus


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


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


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


Page 20

Company Focus


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


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


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


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)


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


Operating Assets


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


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


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.


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


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

associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any

means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers

to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and

agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or

taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do

not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions

expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this

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This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees,

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herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and

there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or

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This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no

planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates

and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the

estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary

significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments

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


Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating

to the commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not 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 and

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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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research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does

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

of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily

responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new

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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


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

obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security

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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Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

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Page 28

Company Focus


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Page 29

Company Focus


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Documents

Singapore Company Focus Far East Orchard Limited