Far East Horizon Limited (3360 HK) Summary
Core Content Overview
Far East Horizon Limited (3360 HK) reported its FY21 results and held an analyst briefing on 16 March. The company demonstrated sequential improvement in net interest margin (NIM) and asset quality during the second half of FY21. Net profits grew by 20% YoY, while pre-provision operating profit (PPoP) increased by 11% YoY. The company reiterates its BUY rating, citing strong growth prospects and undervaluation.
Main Financial Highlights
Earnings Summary (YE 31 Dec)
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue (RMB mn) |
29,042 |
33,644 |
38,210 |
43,649 |
48,301 |
| YoY growth (%) |
8.1 |
15.8 |
13.6 |
14.2 |
10.7 |
| Net profit (RMB) |
4,576 |
5,512 |
6,159 |
6,962 |
7,868 |
| EPS (RMB) |
1.20 |
1.36 |
1.43 |
1.61 |
1.82 |
| YoY growth (%) |
5.3 |
13.4 |
4.9 |
13.0 |
13.0 |
| P/E (x) |
4.6 |
4.0 |
3.9 |
3.4 |
3.0 |
| P/B (x) |
0.64 |
0.57 |
0.53 |
0.47 |
0.42 |
| Yield (%) |
5.5 |
6.5 |
6.8 |
7.7 |
8.7 |
Key Ratios
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| NIM (%) |
3.83 |
4.06 |
4.13 |
4.22 |
4.27 |
| NIS (%) |
2.85 |
3.21 |
3.47 |
3.40 |
3.40 |
| Industrial operation GPM (%) |
19.7 |
30.9 |
22.0 |
22.1 |
22.2 |
| Pre-tax margin (%) |
25.9 |
29.8 |
29.1 |
28.5 |
28.9 |
| Net profit margin (%) |
15.8 |
16.4 |
16.1 |
16.0 |
16.3 |
Asset Quality
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| NPA ratio (%) |
1.10 |
1.06 |
1.07 |
1.09 |
1.10 |
| Provision coverage ratio |
256 |
249 |
200 |
193 |
189 |
Main Points and Analysis
Financial Business
- NIM Expansion: FY21 NIM expanded by 23bps YoY to 4.06%, with a further 21bps HoH increase in 2H21.
- Asset Quality Improvement: NPA ratio decreased from 1.10% to 1.06% by end of FY21. The 30+ days overdue ratio also improved.
- Future Outlook: FEH is expected to continue allocating interest-earning assets (IEA) to less cyclical sectors, which will support IEA growth and NIM stability.
Industrial Operations
- Strong Revenue Growth: Industrial operations contributed 34% of total operating income in FY21 and are expected to maintain strong growth in FY22E.
- Operating Leverage: Continuous improvement in operating leverage is anticipated.
- Spin-off Potential: The spin-off IPO of Horizon Construction Development (HCD) could unlock hidden value in the industrial segments.
Valuation
- P/B and P/E Ratios: FEH is trading at 0.5x FY22E P/B and 3.6x FY22E P/E, both at the lower end of its historical range.
- Entry Point: The current share price is seen as a good entry point due to macroeconomic concerns, with a target price of HK$12.50.
- Price Performance: The stock has underperformed over the past 12 months, with a -34.6% return in 6 months.
Strategic Outlook
- New Business Expansion: The inclusive finance business is expected to support a stable NIM.
- Long-term Growth: The company's long-term growth outlook remains stable, with consistent earnings and strong fundamentals.
- Market Position: FEH is well-positioned to benefit from the continued growth in industrial operations and improved asset quality.
Analyst Rating
- Rating: BUY (Maintain)
- Target Price: HK$12.50
- Up/Downside: +100%
- Current Price: HK$6.26
Shareholding and Stock Data
| Metric |
Value (HK$) |
| Market Cap (mn) |
25,970 |
| Avg 3 mths t/o (mn) |
16.83 |
| 52w High/Low |
9.58 / 5.78 |
| Total Issued Shares (mn) |
4,314 |
Shareholding Structure
| Shareholder |
Percentage (%) |
| Sinochem Group |
20.66 |
| Kong Fanxing |
16.79 |
| JPMorgan Chase & Co. |
9.41 |
CMB International Global Markets Rating
- BUY: Potential return of over 15% over the next 12 months.
- OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
Disclaimer and Risk Information
- The report is for informational purposes only and not investment advice.
- CMBIGM does not provide individually tailored investment advice.
- Past performance does not guarantee future results.
- There are risks involved in transacting in any securities.
- The report is subject to change without notice.
- CMBIGM may have investment banking relationships with the companies mentioned.
- Recipients are advised to consult a professional financial advisor before making investment decisions.
Legal and Distribution Notes
- United Kingdom: The report is only for persons within Article 19(5) or 49(2)(a) to (d) of the Order.
- United States: The report is only for "major US institutional investors" as defined in Rule 15a-6.
- Singapore: The report is distributed by CMBISG, an Exempt Financial Adviser, and is subject to Singapore regulations.
