Future Bright Holdings Limited (703.HK) Overweight. Company Research Report. Company Research Report interim result. Date.

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1 Company Research Report Company Research Report Date Industry 2011/09/19 Retail-Restaurants Closing Price HK$0.46 Target Price HK$0.78 Share Information Stock Code 703 Outstanding Shares (mn) 5.54 Market Cap (HK$mn) 3 6-mth Avg Daily Turnover (HK$mn) mth High/ Low (HK$) 0.61/0.36 CFPS (HK$) 0.2 BVPS (HK$) 0.4 P/E (x) 2.7 P/B (x) 1.1 ROE (%) 23 ROA (%) 12 Net Debt/ Equity (%) Net Cash Div. Yield (%) 3.3 Source : Bloomberg, Emperor Securities Research Price Performance HKD $ 1-mth 3-mth 6-mth 12-mth Change (%) Rel. to HSI (%) Source : Bloomberg Futurebright /10 11/10 02/11 05/11 08/11 Research Department Tel : (852) Fax : (852) esl.research@emperor.com.hk Future Bright Holdings Limited (703.HK) 2011 interim result Strong sales & profit growth: Future Bright reported company EBITDA of HK$69.2 mn, chalking up a handsome 97.8% YoY increase. Having extended its F & B operations steadily over the past few years, FBH benefited strongly from Macau s high level of visitation (up 15% YoY in 1Q2011), and increased tourist spending. Turnover grew 53.2% to HK$244 mn, exceeding our expectations. Newly acquired investment property began generating positive cash flow, contributing HK$7 mn to overall revenue. Net profit came in at HK$42 mn, up 96.3% YoY. More effective operation: Having kept its overhead costs in check (admin. cost equals 17% of turnover, down 3 % from 1H 2010 s 20%), and improved its gross margin (increased 0.8% to 35%) due to increased turnover, operating profit margin shot up from H s 16% to H s 23%. The highly efficient management bodes well for the Group s long term success. Price catalyst and valuation: FBH shows promising long term growth potential given its leading market position and the management s involvement in the mega Cotai theme-park development. The F & B sector is currently under-represented in HK, denting FBH s valuation. With several F & B players pending to be listed in the coming months, we believe this could catalyze upward revaluation as the market appreciates further its intrinsic value. Relative undervaluation: FBH is currently trading at less than 3x prospective P/E, a bargain compared with peers such as Tang Palace (1181.HK, 17x P/E ). Considering the better-thanexpected interim result, we adjust upward our sales forecast for FY11-13E by %, and project that the Group s net profit will grow at a CARG of over 45.6% from 2010 to 2013, taking into account both core revenue growth and asset revaluation gain. We maintain our Overweight rating and set the target price at HK$0.78, representing an undemanding 4.6 times its 2011 expected earnings. Financial Information Year Ended 31 March E 2012E 2013E Revenue (HK$mn) Growth (%) Net Profit (HK$mn) Growth (%) N/A EPS (HK$) Growth (%) N/A P/E (x) DPS (HK cent) Source : Bloomberg, Emperor Securities Research Overweight 1

2 Operation review and outlook FBH s cautious expansion policy bore rich fruits this year. With a strong portfolio of 21 restaurants and 8 food court counters situated mostly in Macau s upmarket hotels, business soared up as tourist spending increased. The Japanese earthquake has only a mild impact on FBH s Japanese restaurants' business, with the Group s F & B revenue growing by 48.6% YoY to HK$237mn in this first half, accounting for 97% of total revenue. The investment property acquired in 4Q10 has been leased to the Macau government, generating a stable monthly cash flow of MOP1.2mn. Given the buoyant property market in Macau, we believe the property has good long-term appreciation potential and will contribute about HK$34mn of capital gain from asset revaluation in FBH is developing an integrated food processing centre with total GFA ~10,000sq.m in the Zhuhai-Macau Industrial Park, with operation to commence in The food centre provides cost reduction opportunity and will open up new source of revenue through diversification into processed package food, further leveraging FBH s economy of scale and confirming the group s dominant position in Macau s F & B business. Looking forward, we believe Macau s F & B market is far from saturation, with developments in the Cotai area providing ample growth impetus. In particular, a HK$10bn-plus mega theme park comprising 6 hotels has been planned. With the company s managing director, Mr. Chan Chak Mo, appointed as the project s manger, FBH is well-positioned to secure a prominent foothold in the project s F & B business. We remain optimistic on FBH s potential for growth. We see hard-landing in China s economy as unlikely, and believe Macau s economy will be relatively resilient even in the face of economic uncertainties in US and Europe. Nonetheless, a severe global downturn or a drastic change in China s Macau travel policy could seriously affect the Group s profitability. Figure 1 : H and H income statement H H % change HK$(mn) Turnover % Cost of sales (159) (105) 51% Gross profit % Other income % % of sales 5.74% 3.99% 1.75% Admin. expenses (41) (33) 26% % of sales 17% 20% -3.65% Share of loss of a jointly controlled entity (2.37) (3.27) -27% % of sales 1.0% 2.0% -1.08% Operating proft % Net finance costs (4.35) (0.44) 888% Profit before tax % Income tax (9.4) (3.0) 214% Others 0.09 / Net profit % EPS Basic (HK cent) % Diluted (HK cent) % Dividends Interim / / Ratios Gross profit margin 35.0% 34.2% 0.79% Operating profit margin 23% 16% 7.28% Net profit margin 17.3% 13.5% 3.8% Source: Future Bright 2

3 Income Statement Revenue Cost of Sales Operating Exp Gross Profit Other revenue Admin. Expenses (57) (69) (87) (110) (138) Other gain and lose Operation Profit Property Revaluation Finance costs (1) (2) (9) (9) (9) Share of an associate (3) (6) (8) (11) (13) Profit before tax Income tax expense (3) (8) (17) (19) (24) Minority interest (10) (18) (30) (39) (50) Net profit EPS DPS IP= Investment Property Balance Sheet As at 31 December (HK$mn) E 2012E 2013E Cash & CE Trade & Other Rec Inventories Others Current assets PPE Investment property Goodwill Others Total assets Bank loans Trade & other pay Current tax liabilities Others Current liabilities Unsecured Bank loans Other borrowings Others Non current liabilities Total Liability Total Equity Cash Flow Statement Cash flow operating Cash flow investing (63) (147) (235) (62) (57) Cash flow financing (4) (41) (43) Cash & CE at BY Net Cash Change (6) Effect of ER Change Cash & CE at EY Financial Ratio Profitability(%) Gross margin EBITDA Operating margin Profit bef. tax margin Net profit margin Growth (%) Revenue EBITDA (1184) Operating income (870) Net profit (237) EPS (237) Operating Performance Current ratio (x) Quick ratio (x) Admin Exp/ Sales(%) Dividend Payout (%) Inventory Turnover AP turnover (day) AR turnover (day) Other Ratio Int coverage ratio (x) (51) (49) (13) (18) (23) Net debt to equity (32) (42) (57) (67) (79) Sales/assets (x) Assets/equity (x) ROA (%) ROE (%)

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