Far East Annual Declared Dividends
This is the first question I had in mind. While delving into Far East's cash flow, I did not use the reported figure under " net cash from operating activities" but instead "Cash before working capital changes"; this eliminates the chance of companies using trade receivables or trade payables to juice up their operating cashflow. Below is what I found for Far East Orchard:
FY14: $50.9 Million
FY15: $36.2 Million
FY16: $24.7 Million
FY17: $27.2 Million
FY18: $28.9 Million
(Edits with Ghchua Contributions on Investing Cash inflow)
Ghchua has pointed out that Far East Orchard has been receiving cash inflow as dividends from its joint ventures of overseas assts. A quick look into their investing activities shows the varying level of dividends received.
Cash inflow from Dividends of JV, found in investing cashflow:
FY14: $2.8 Million
FY15: $17.4 Million
FY16: $27.5 Million
FY17: $14,1 Million
FY18: $36.7 Million
To sustain Far East's Dividends, the company needs to generate about $26 million. Netting off interest expense (of about $5.5-6.0 Million) and income tax expense, it seems Far East Orchard has a sufficient buffer of cashflow to sustain its 6 cents dividends
Business of Far East Orchard
While Far East Orchard's business is no doubt in properties, this segment can be broken down into 2 further parts - Property Management and property developer.
One positive aspect of Far East is its property management as a REIT manager. Far East is the manager for a business trust listed on the SGX. As a reit manager, a majority of its management fees comes from the asset value of the REIT; this means a rather stable of income for Far East, preventing any downward revision in its future cashflows.
The company too has recently purchased student accommodation projects which should ensure stable cashflow.
However in the sense of cashflow, Far East's property development arm is one which generates inconsistent cashflow- one year can be extremely high, while the next can be low. Looking at its latest annual report, Far East's property Development revenue for the past 2 years has been below 20%. It seems the company is largely dependent on its hospitality assets and business trust for income
Far East has a few hotels in Singapore, Australia, Germany, Denmark and Malaysia. The hotel chain names of "Rendezvous, Oasis and Village Hotel" are one of the largest few brands in the chain.
On the other hand, it runs a business trust called Far East Hospitality Trust, which manages only its Singapore Hospitality property. Far East Orchard is drawing a fixed amount of $12.2 million annually for running the Trust.
This means the rest of Far East Orchard's assets such as overseas hotels and student accommodation projects are contributing to the remainder of the $16 million plus cashflow. Most of these assets are freehold by nature which is definitely better than a leasehold property. From the cashflow, received in its investing activities, it seems Far East Orchard has been receiving about $16 million in cashflow, which will sustains its 6 cents dividends.
In addition, In my view, Far East Orchard has another attraction and that is its ability to sell off its freehold overseas assets into its business trust (who will always be a "willing buyer").
From the above, Far East's 6 cents dividend is sustainable. In addition, with Far East owning numerous freehold assets in Singapore and the rest of the world, it seems a definite that Far East Orchard will be at least able to generate $12.2 million of cashflow even during the worst times.
At its current price of $1.27 with an estimated dividend yield of 4% similar to CPF Long term interest, the company is slightly undervalued. With Far East Orchard additional ability to monetise its overseas assets by injecting it into its Far East Hospitality trust. There seems to be some value to Far East Orchard
This comment has been removed by the author.ReplyDelete
Hi Choon Yuan,ReplyDelete
You have missed out $36.75 million dividend received from JVs under cash flow from investing activities in FY18. These are mainly from their JVs in Toga Trust and also Woods Square property development.
Also, they do not need to pay out $26 million in cash as dividend each year (for 6cts per share dividend) as they have a scrip dividend scheme in place. For example, in FY18, they only paid out $8.1 million in cash, with the rest in scrip.
With the above in mind, do you think that the 6 cents dividend is still sustainable going forward?
Hi Ghchua, thanks for pointing out, will reedit my points then.Delete
This is a hidden gem in my view... traded much below it nav.....invested in them...ReplyDelete
P/bv is 0.439.... based on the sgx figure...safety of Margin is almost 60%......ReplyDelete
Hi Choon Yuan,ReplyDelete
Thank you for highlighting this hidden gem. Do you have any comments on the infringement case which has taken place way back in 2015 and they tried to appeal but the CCC has released its formal decision in Jan 19 and maintained
the financial penalty of S$286,610 as proposed in the PID? I believe management's integrity plays an important factor when deciding whether to invest in a company.