Far East Consortium Spin-off Notes

October 16, 2023 Update

Far East Consortium (SEHK: 35), a Hong Kong listed real estate developer, with a market cap of $HK4.6BN ($590MM USD), announced on September 27, 2023 that it received approval to spin-off a minority stake in its Palasino gambling business.

Far East acquired Palasino in 2018. It consists of a casino resort and two casinos in the Czech Republic (with a total of 560 slot machines and 59 gambling tables) as well as three hotels in Germany and one in Austria. It recently also received a gambling license in Malta.

According to its prospectus, Palasino has grown revenue by 161% in the past two years. Net income has grown from HK$2.5MM in FY 2021 to HK$44.2MM. Far East will retain a 50%+ stake in the spin-off which suggests the spin-offs future is bright. Here’s a good article with additional details.

Far East looks interesting at a high level. Over the past nine years, the company has paid 1.65 in dividends (current stock price is 1.65). Far East is primarily a real estate company but its holdings are diverse from a geographic perspective (not overly concentrated in Hong Kong and China). Far East does have significant debt, much of which will mature within a year. As such, I think the better opportunity will be to watch the spin-off to see if it sells off to a cheap valuation. Timing of the spin-off is uncertain, but I’ve assumed it takes place by Q1 2024.