Far East Horizon Limited (3360 HK) Company Update Summary
Core Content Overview
Far East Horizon Limited (FEH) has released its 3Q21 operating data, highlighting strong performance with both operating income and net profit growing by over 20% YoY in the first nine months of 2021. This growth was driven by continued NIM expansion and improving asset quality. The company resumed coverage with a BUY rating and a target price of HK$12.50, based on a SOTP (Sum of the Parts) valuation method.
Main Points and Key Information
Financial Business Performance
- NIM Expansion: FEH's net interest margin (NIM) expanded both on a quarter-over-quarter (QoQ) and year-over-year (YoY) basis in 3Q21.
- Asset Quality: The non-performing asset (NPA) ratio continued to trend downward, indicating improved asset quality.
- Funding Costs: Lower funding costs were a key factor behind the NIM expansion, attributed to more diversified funding sources.
- Future Outlook: FEH is expected to continue allocating interest-earning assets (IEA) to less cyclical sectors such as healthcare, cultural & tourism, and urban public utilities, which will support robust IEA growth and a stable NIM.
Industrial Operations Performance
- Equipment Operations: Continued rapid growth in assets and operating income.
- Hospital Operations: Achieved steady revenue increases YoY despite a higher base in 3Q21.
- Growth Sustainability: Strong income and profit growth from industrial operations is expected to continue into 4Q21 and FY22E.
- Operating Leverage: Operating leverage is improving, which could enhance profitability.
- Value Unlocking: Progress in capitalizing industrial operations may unlock hidden value for the company.
Target Price and Valuation
- Target Price (TP): HK$12.50, derived from the SOTP method.
- Valuation Methodology:
- Financial Leasing Business: Valued at 0.7x P/B FY21E, resulting in a valuation of HK$40,206 million.
- Industrial Operations Business: Valued at 10x P/E FY21E with a 20% conglomerate discount, resulting in a valuation of HK$13,847 million.
- Total Valuation in HK$: HK$52,100 million.
- Implied Ratios:
- P/B (FY21E): 1.1x
- P/E (FY21E): 8.1x
- Current Trading Ratios:
- P/B (FY21E): 0.66x
- P/E (FY21E): 4.9x
- Current Price: HK$7.50, trading at the lower end of its historical range.
Earnings Summary (YE 31 Dec)
| Metric |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Revenue (RMB mn) |
26,856 |
29,042 |
35,182 |
40,672 |
46,658 |
| YoY Growth (%) |
5.8 |
8.1 |
21.1 |
15.6 |
14.7 |
| Net Profit (RMB mn) |
4,338 |
4,576 |
5,325 |
6,135 |
7,275 |
| EPS (RMB) |
1.14 |
1.20 |
1.28 |
1.48 |
1.75 |
| YoY Growth (%) |
11.4 |
5.3 |
6.7 |
15.2 |
18.6 |
Key Catalysts and Risks
Catalysts
- Spin-off IPO of Horizon Construction Development ("HCD"): Expected to drive growth and value creation.
- Spin-off Restructuring of Horizon Healthcare: Major progress is anticipated, which may enhance operational efficiency and profitability.
Risks
- Asset Quality Deterioration: Potential increase in non-performing loans.
- Weaker Demand: For financial business or industrial operations, which could impact revenue and profit growth.
Shareholding Structure
| Shareholder |
Percentage (%) |
| Sinochem Group |
20.66% |
| Kong Fanxing |
16.79% |
| JPMorgan Chase & Co. |
9.41% |
Stock Data
| Metric |
Value (HK$) |
| Market Cap |
31,096 |
| Avg 3 mths t/o |
46.61 |
| 52w High/Low |
9.58 / 7.01 |
| Total Issued Shares |
4,168 |
Key Ratios
| Metric |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Revenue Mix (%) |
|
|
|
|
|
| Finance lease, factoring & loans |
59 |
57 |
57 |
55 |
52 |
| Advisory services |
17 |
13 |
10 |
9 |
9 |
| Industrial operation |
24 |
30 |
34 |
37 |
39 |
| YoY Growth (%) |
|
|
|
|
|
| Revenue |
6 |
8 |
21 |
16 |
15 |
| Finance lease, factoring & loans |
-2 |
4 |
20 |
12 |
9 |
| Advisory services |
-6 |
-16 |
-9 |
3 |
16 |
| Industrial operation |
44 |
35 |
36 |
25 |
23 |
| Pre-tax Margin (%) |
26.6 |
25.9 |
24.5 |
24.2 |
24.7 |
| Net Profit Margin (%) |
16.2 |
15.8 |
15.1 |
15.1 |
15.6 |
| ROE (%) |
15.0 |
14.2 |
14.5 |
14.7 |
15.5 |
| Net Gearing (%) |
79.6 |
81.7 |
81.1 |
80.8 |
80.4 |
Analyst Rating and Disclaimer
- Rating: BUY
- Target Price: HK$12.50 (previous TP: HK$11.10)
- Up/Downside: 66.7%
- Analyst Certification: The analyst certifies that the views expressed reflect personal opinions and are not influenced by compensation.
- Important Disclosures:
- CMBIS does not provide individually tailored investment advice.
- Information is based on publicly available data and is not guaranteed for accuracy or completeness.
- The report is for informational purposes only and not an offer to buy or sell securities.
- Investors should consult with a professional financial advisor before making decisions.
Summary
FEH has shown strong financial performance in 3Q21, with both operating income and net profit increasing by over 20% YoY. The financial business benefited from NIM expansion and improved asset quality, while industrial operations, especially in equipment and hospital sectors, continued to grow. The company is currently undervalued compared to its historical trading range, with a target price of HK$12.50 based on SOTP valuation. Key catalysts include the spin-off IPO of HCD and progress in restructuring Horizon Healthcare. However, risks such as asset quality deterioration and weaker demand for financial or industrial operations remain.
