DBS: Leasing Sector Embraces The Super Up-Cycle; Top Buys: Far East Horizon(3360.HK)

HONG KONG – (ACN Newswire) – DBS recently issued a research report on China leasing sector, which indicated that it will be set to benefit from China’s ongoing deleveraging campaign, continuous expansion in manufacturing and infrastructure FAI. Far East Horizon was listed as top buys, with initiate coverage with BUY and target price of HK$10.3, implying a 35% upside.

DBS pointed out that it should be focused on the profitability changes of Far East Horizon rather than its asset growth as it prefers to be less aggressive in expanding amid macro uncertainties in the future. The core leasing business of Far East Horizon will be benefit from macro-trends changes. Far East Horizon is well positioned in selective segments including urban public utility, healthcare and education, accounting for 59% of its total interest earnings asset in 1H2018. With 70% of its customers coming from state-owned enterprises, Far East Horizon is well balanced between risk and reward of its assets and customers portfolio. It expected that the funding cost of Far East Horizon will continuously benefit from lower market interest rate, and the asset quality will remain benign in 2019.

DBS considered that the deployment in hospital operations of Far East Horizon is also expected to help mitigate the volatility in core leasing business, providing stable income streams and create business synergies. Far East Horizon first entered the hospital-operation business back in 2014. It has been expanding throughout the years and operated 43 medical service institutions in 1H2018. Its total number of hospital beds had reached 16,000, with a 2018 full-year target of reaching 20,000 beds, the hospital operator with the largest bed capacity in China. DBS believed that the profit growth of Far East Horizon will accelerate once it has gained better economies of scale. Furthermore, its deployment in the hospital operation will also help to create synergy, improving industry know-how and credit risk awareness of its financial leasing business.

DBS believed that the share price of Far East Horizon is significantly undervalued, as its current share price reflects zero value of its hospital operation, and the leasing business is also undervalued by the market. Based on SOTP valuation, DBS initiated Far East Horizon with BUY and target price of HK$10.3, which implies a 35% upside.

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