Far East Orchard Limited (FEO): FY2025 Financial Review and Outlook

Far East Orchard Limited (FEO), a Singapore-listed company with diversified interests in hospitality, property investment, and purpose-built student accommodation (PBSA), released its unaudited interim financial statements for the year ended 31 December 2025. The report details a transformative year marked by acquisition activity, revenue growth, and evolving business strategy. Here is an in-depth analysis for investors and financial professionals.

Key Financial Metrics

Historical Performance Trends

• Revenue for FY2025 increased 29.1% to \$247.6m, mainly due to the acquisition and consolidation of Homes for Students Limited (HFS) in the PBSA segment. Hospitality revenue was slightly lower YoY due to weaker performance in Australia and Singapore, offset by stronger results in Japan and new properties.
• Gross profit rose 13.1% to \$111.1m, but profit attributable to equity holders declined by 8.4% YoY to \$54.0m, reflecting higher administrative and finance expenses, lower fair value gains on investment properties, and the amortisation of new intangible assets.
• EPS fell from 12.07 cents in FY2024 to 11.02 cents in FY2025 as net profit declined.

Exceptional Earnings and Expenses

• One-off gains were recognised: \$19.8m from the remeasurement of the previously held interest in HFS after the acquisition, and \$9.1m from acquiring an additional stake in a Singapore property joint venture below fair value.
• Impairment charges of \$5.7m were taken on a mixed-use development held for sale in the UK.
• Finance expenses increased by \$4.2m due to the expiry of low-rate hedges and new borrowings.
• Net fair value gains on investment properties plunged from \$32.3m in FY2024 to \$8.0m in FY2025.

Dividends

• FY2025: Proposed first and final dividend of 4 cents per share, down from the prior year’s combined 5 cents (including a special dividend).
• Dividends may be paid in cash or shares via the Scrip Dividend Scheme.

Asset Revaluation

• Revaluation losses on property, plant and equipment amounted to \$11.0m, primarily due to lower valuation of freehold and leasehold land in Singapore.
• Investment properties and land/buildings are valued by external experts annually using Level 3 inputs; no delays in revaluation were reported.

Corporate Actions and Fund Flows

• The Group acquired 35% additional interest in HFS, increasing its stake from 49% to 84%, and now consolidates HFS. A put option liability was recognised for the remaining 16% shares held by non-controlling interests.
• Acquisition of a further 6.7% stake in Woodlands Square Pte. Ltd. reclassified the investment from a joint venture to an associate.
• Investments in joint ventures decreased due to reclassification and dividend declarations.
• Scrip dividend scheme resulted in dilution through new share issuance.

Legal and Other Events

• FEOpus, a joint venture, faces legal claims regarding a commercial development. The Group does not expect material financial exposure.
• HFS received a Letter Before Action from a client regarding a cyber-fraud incident, with a claim of £4.74m. No provision has been made, and legal advice suggests defendable grounds.
• Asset sale post-balance sheet: a mixed-use development in the UK is under agreement to be sold; impairment had already been recognised.

Chairman’s Statement

“The Group has commenced its next five-year strategy, FEOR30, focusing on strengthening and scaling an integrated lodging platform established under its FEOR25 strategy, to build earnings resilience and grow recurring income. This will be supported by disciplined capital allocation, selective use of third-party capital, and continued optimisation of the Hospitality and PBSA portfolios. Global conditions in 2026 are expected to remain challenging, with risks from trade and geopolitical uncertainties, potential market volatility, and financing cost pressures, which may moderate short-term performance. Against this backdrop, the Group remains focused on executing FEOR30 to scale its lodging platform for sustainable long-term growth.”

The tone is cautiously optimistic, acknowledging headwinds but emphasising strategic execution for resilience and growth.

Outlook and Forecasted Events

• Hospitality: Moderate growth expected globally, with Singapore benefitting from major events. Japan’s hospitality sector will normalise after a record 2025; Australia’s tourism recovery will continue amid ongoing property refurbishments.
• PBSA: UK sector expected to normalise in 2026; structural demand remains supportive but rental growth is moderating and certain cities face weaker occupancy. Development is constrained by high costs and regulation.
• Risks: Trade/geopolitical tensions, cost pressures, and market volatility may affect short-term results.

Related Party Transactions

• Management and hospitality services provided to companies associated with controlling shareholders totalled significant amounts.
• Acquisition of joint venture stakes involved related parties, disclosed transparently.

Conclusion: Performance and Recommendation

Overall, Far East Orchard Limited delivered strong top-line growth driven by its PBSA acquisition, but profitability declined due to higher expenses, lower asset revaluation gains, and increased finance costs. The dividend was trimmed to 4 cents per share, reflecting a more cautious payout amid reduced net profit. Asset revaluation losses and ongoing litigation pose minor risks, but the Group’s liquidity and asset base remain robust. The Chairman’s outlook is positive on long-term growth but acknowledges near-term challenges.

Investor Recommendations

• If you are currently holding the stock: Consider maintaining your position. FEO is executing a long-term strategy and has demonstrated resilience through diversification and acquisitions. However, monitor the effects of cost pressures, occupancy trends in PBSA, and any materialisation of legal claims. The trimmed dividend and lower net profit signal caution but do not undermine the Group’s fundamentals.
• If you are not holding the stock: Consider a wait-and-see approach. While FEO offers exposure to defensive segments like PBSA and hospitality, short-term risks (cost inflation, legal claims, asset revaluation losses) and lower profitability suggest it may be prudent to observe for signs of margin recovery or successful execution of the FEOR30 strategy before entering.

Disclaimer: This analysis is based solely on the information contained in FEO’s FY2025 financial report. It does not constitute financial advice. Investors should consider their own risk tolerance and conduct further research before making investment decisions.

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