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The 5 Ways Far East Orchard Ltd Makes Its Money

Far East Orchard Ltd (SGX: O10), which is a member of Far East Organization, Singapore’s largest private property developer, is a real estate developer and investor. The company is also a vertically integrated regional hospitality owner and operator with a sizeable overseas network.

At Far East Orchard’s current stock price of S$1.67, it has a price-to-book (PB) ratio of 0.57.

Investors or potential investors who are interested in the company may want to better understand how the company makes its money. This is important since Far East Orchard has a number of different real-estate related businesses.

So, here’s a quick overview of how the company makes its money.

In the chart below, you can see the revenue contributions from Far East Orchard’s three different business segments from 2011 to 2015. The segments are Property Development, Property Investment, and Hospitality.

Far East Orchard revenue chart
Source: Far East Orchard 2015 annual report

The Hospitality segment has quite obviously been the largest revenue contributor to Far East Orchard in recent years. In 2016, it accounted for 92% of the company’s total revenue.

The segment owns and operates various hospitality assets, and can be further broken down into three sub-segments:

  1. Management services: This sub-segment includes all of the hospitality properties that Far East Orchard manages directly in Singapore.
  2. Operations: This is where the company operates leased properties in Singapore, Australia, and New Zealand. It also houses Far East Orchard’s investments in a joint venture with the Toga Group and the manager of Far East Hospitality Trust (SGX: Q5T).
  3. Property ownership: This sub-segment generates income from the ownership of hospitality properties (either directly or through joint-ventures) in Australia, Germany, Denmark and Malaysia

Moving on to the Property Development segment, it is where Far East Orchard brings in income from the development of properties. In 2016, this segment contributed no revenue.

Last but not least, we have the Property Investment segment. This is where Far East Orchard derive rental income and capital appreciation from assets such as medical suites, student accommodation buildings, and offices.

As we have seen, there are a number of moving parts in the business of Far East Orchard. By breaking down the company’s revenue streams, investors can better understand how it generates its income and in turn, better evaluate the company.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.