SAC Capital analysts June Yap and Matthias Chan have highlighted Far East Orchard O10 ’s strategic partnerships and ongoing asset-light expansion.
In their July 19 report, the analysts note Far East Orchard’s performance for the 1QFY2024 ended March 31 and moves so far.
In its 1QFY2024 business update, Far East Orchard reported a revenue of $50.9 million, 10.4% higher y-o-y. Its net profit surged by 54.8% y-o-y to $6.5 million. In FY2023, the group also saw revenue and net profit improve 30.3% y-o-y to $183.6 million and 207.4% to $66.1 million, respectively. This significant increase in net profit came on the back of fair value gains from purpose-built student accommodation (PBSA) investment properties and underlying income growth.
Far East Orchard also announced, in April, that it acquired a 49% stake in Homes For Students Limited, the UK's largest independent PBSA operator, enhancing its recurring income stream and fortifying its market position.
They add that the group’s PBSA portfolio continues to experience strong demand, with near-full occupancy and ongoing development projects, such as a new PBSA site in Glasgow.
Favourable demand-supply dynamics and support from strong domestic and international student demand, have become growth drivers of Far East Orchard’s UK sector. Additionally, the group has also reported a 40.5% increase in revenue for its hospitality business, which stands at $126.9 million, following higher occupancies and average daily rates as international travel begins to rebound.
The company has since expanded its footprint by opening six new hotels, totaling over 750 rooms, across Australia, Japan, Malaysia, and Switzerland.
“In 2024, the group is on track to open approximately 600 rooms across the Asia-Pacific and Europe, bringing their room count to over 17,000,” add the analysts.
Far East Orchard’s current price-to-book (P/B) stands at 0.4 times which trades favourably compared to its peers which are trading closer to 0.6 times and the Mainboard’s current P/B of 1.2 times.
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That said, potential risks identified by the analysts include persistent inflation and high-interest rates increasing transport and accommodation costs; volatile oil prices and trade disruptions affecting overall travel expenses; weak consumer sentiment due to high costs impacting travel behavior; and geopolitical risks challenging the group's positive medium-term outlook.
As at 10.11am, shares in Far East Orchard are trading at an unchanged $1.
