Far East Horizon Limited 2011 Annual Results Presentation · Far East Horizon Limited 2011 Annual Results Presentation Private and Confidential - 2 - ... NPA ratio 0.99% 0.60% 39

- 1 -

March 2012

Far East Horizon Limited

2011 Annual Results

Presentation

Private and Confidential

- 2 -

Disclaimer

The document is prepared by Far East Horizon Limited (referred to as “company”

hereafter) and information contained herein has not been verified on an independent

basis. The document contains private and confidential information that has not been

independently verified by a third party. The company does not guarantee the

correctness, fairness and completeness of the information contained herein, nor is it

obliged to update or revise any forward-looking statement contained herein in future.

No representation or warranty expressed or implied is made as to , and no reliance

should be placed on, the fairness, accuracy and completeness or correctness of the

document. Information contained in the document may be changed without prior

notice and will not be updated according to materials developments following the

marketing. In addition to statement of historical facts, the document also include

some forward-looking statements. Such statements usually involve some known and

unknown risks and uncertainties, most of which are not within the company’s control.

We hereby remind you that you should not unreasonably rely on the forward-looking

statements contained herein as they may differ materially from real results.

- 3 -

Total assets 3,824,164 7,474,702 95.5%

Loans and account receivable 3,700,329 6,558,082 77.2%

Total liabilities 3,296,832 5,998,442 82.0%

Interest-bearing liabilities 2,569,939 5,494,780 113.8%

Equity attributable to owners of the parent 526,912 1,475,622 180.0%

NPA ratio 0.99% 0.60% 39 bps

30-day overdue ratio 0.14% 0.08% 6 bps

Provision coverage ratio 116. 4% 214.3% 97.9 pp

Liability / total assets 86.21% 80.25% 5.96 pp

31 Dec 2010 31 Dec 2011 Change Financials (US$’000, except for %s)

Key Financials – Balance Sheet

- 4 -

Revenue 326,909 729,895 123.27%

Interest income 178,361 474,028 165.77%

Fee income 119,768 170,199 42.11%

Trading and other income 38,786 106,178 173.75%

Profit before tax and provisions 150,082 268,950 79.20%

Net profit attributable to shareholders 103,749 171,412 65.21%

Basic and diluted EPS (cents) 5.45 6.56 20.4%

Net interest margin (NIM) 3.18% 4.33% 115 bps

Return on average assets (ROAA) 3.50% 3.04% 46 bps

Return on average equity (ROAE) 25.75% 17.13% 8.62 pp

2010 2011 Change Financials (US$’000, except for %s)

Key Financials – Income Statement

- 5 -

2. Business Environment

1. Company Overview

4. Financial Performance

5. Future Development

3. Operating Model

- 6 -

Company Overview and History

100% acquired

by Sinochem

Group

Listed on the mainboard of SEHK

on Mar 30

2000 2011

Introduce strategic

partners such as

KKR and GIC into

the company

1991 2009 2001

Founded in Shenyang

jointly by investors from

China, Japan and Korea

Far East Horizon is an innovative financial company. Leveraging China’s fast

growing economy and focusing on China’s basic industries, Far East Horizon

adopts a business model that combines the financial industry with other industries

to serve the most vigorous companies in these industries in various forms

including financial leasing, advisory, trading and brokerage

Company moved

to Shanghai

- 7 -

• Prudent industry selection, professional

operating procedures and support

systems

• Grow current industries and develop

into new industries

• Maintain leading position in niche

markets such as healthcare, education,

machinery and printing

Industry Focused Integrated Services

Unique Business Model

• Continuous innovation on products

and services to strengthen the

company’s diversified business model

Advisory

Medical

Engineering

Operating Leases

……

Trade &

Brokerage

Financial

Leasing

Client

2003

2005

2007

2007

2008

2008

2011

Healthcare

Shipping

Infrastructure Construction

Machinery

Education

Textile

Printing

......

- 8 -

-10.9%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

3/3

0

5/1

8

6/3

0

8/1

2

9/2

6

11/9

12/2

1

2/9

Far East Horizon Hang Seng Index

Hang Seng Finance Index HK Listed Banks

+8.1%

-17.0% -14.7%

Following a successful IPO on SEHK, Far East Horizon has consistently outperformed peers

and the market, and has been successively selected as part of indices such as MSCI China,

FTSE China, etc.

Recognized by the Market Post IPO

5 Sep 2011

Selected into

HSCEI

16 Nov 2011

Selected into

MSCI China

SEHK listing

7 times

oversubscribed 30 Mar 2011

16 Mar 2012

Selected into

FTSE China

Source: Bloomberg, Financial China

Market Data as of 20 Mar 2012

- 9 -


1. Company Overview



3. Operating Model

- 10 -

Despite weaker external demand and the government’s control measures, China maintained

stable GDP growth in 2011, with consistent growth of investment in fixed assets and new

equipment

GDP Growth in China and Other Major

Economies Across the World

China’s Fixed Assets Investment

in Previous Years

12.7%14.2%

9.6%9.2%

10.3%9.2%

(10%)

(5%)

0%

5%

10%

15%

20%

2006 2007 2008 2009 2010 2011

EU Japan US China

Source: National Bureau of Statistics of China, Wind Info, IMF

Favorable Macroeconomic Environment

Source: National Bureau of Statistics of China

(RMB100 billion)

2011

0

50

100

150

200

250

300

350

2004 2006 2008 2010

0%

5%

10%

15%

20%

25%

30%

35%

Total Increase

- 11 -

New RMB Lending Year-on-year M2 Growth

0.0

0.4

0.8

1.2

1.6

2.0

2008/01 2008/11 2009/09 2010/07 2011/05

0%

5%

10%

15%

20%

25%

30%

35%

Source: People’s Bank of China

Amount and Growth of New Loans Required Reserve Ratio and

1-year Lending Rate

The contractionary monetary policy in China in 2011 resulted in a more challenging

and costly financing environment for companies

(RMB trillion)

Source: Wind Info

Contractionary Monetary Policy

5.0

5.5

6.0

6.5

7.0

2010-01 2010-07 2011-01 2011-07

一至三年三至五年

% %

10

12

14

16

18

20

22

24

Se

p-1

0

Se

p-1

0

Oc

t-1

0

No

v-1

0

Dec

-10

Ja

n-1

1

Feb

-11

Ma

r-11

Ap

r-11

Ma

y-1

1

Ju

n-1

1

Ju

l-11

5

6

7

8

Required Reserve Ratio 1-year Lending Rate

- 12 -

5%

10%

15%

20%

25%

30%

35%

40%

2006 2007 2008 2009 2010 2011

GDP Healthcare

Printing Infrastructure Construction

Education Machinery

Shipping Textile

11.8

4.64.1

2.2 2.1 1.8

0.8

Infrastructure

Construction

Machinery Textile Healthcare Printing Education Shipping

Source National Bureau of Statistics of China, Ministry of Health, Ministry of

Education, Ministry of Industry and Information Technology

Total: RMB27.4 trillion

Solid Foundations for Target Industries By focusing on China’s fundamental industries closely related to the overall economy, Far East

Horizon enjoys stable development and significant growth potential

Industry Output Breakdown Historical Growth in Target Industries:

Outperformed GDP Growth

Source National Bureau of Statistics of China, Ministry of Health,

Ministry of Education, Ministry of Industry and Information Technology

2010 2011

- 13 -

18,061

2006 2007 2008 2009 2010 2011

Source: Official websites of National Bureau of Statistics of China

and Ministry of Education

Medical industry continues to grow with

number of hospitals constantly increasing

Number of Hospitals and Total Medical Expenses

Significant upside potential in education

industry, with steady growth in investment

Source: Ministry of Health of China

Development of Target Industries（1/4）

Investment in Education

(RMB100 million) (RMB100 million)

21,415

22,400

2005 2006 2007 2008 2009 2010 2011

Number of Hospitals Total Medical Expenses

- 14 -

4,400 4,7505,750

7,0058,021

2007 2008 2009 2010 2011E

0

200

400

600

800

1,000

2007 2008 2009 2010 2011

95%

96%

97%

98%

99%

Production of Machine Tools ('00,000)

Sales Rate

Output of Printing Industry Production and Sales Rate of Metal Cutting Tools

Source: Annual Technical Report of the Printing Industry, Association

of Chinese Packing Companies

Source: China Machine Tool & Toll Builder’s Association

(’ 000) (RMB100 million)

4,964 6,2628,600

10,00012,000

2006 2007 2008 2009 2010

(RMB100 million)

Output of Packaging Industry

Increasing production of metal cutting tools leads to growth in demand for

financing in the machinery industry

Printing and packaging industries continues to grow


- 15 -

Textile Output Contribution to GDP

Textile Industrial Output (RMB100 MM) % of GDP

0

5,000

10,000

15,000

20,000

25,000

30,000

2003 2004 2005 2006 2007 2008 2009 2010

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Textile Gross Industrial Output % of GDP

Growth of Textile & Garment

Consumption in China

The textile industry has been a stable component of the economy, with growth

increasing from 2009 while maintaining a substantial margin over GDP growth

0%

5%

10%

15%

20%

25%

30%

2007 2008 2009 2010 2011

Textile & Garment Retail Sales Growth GDP Growth

Source National Bureau of Statistics of China Source National Bureau of Statistics of China


- 16 -

Source National Bureau of Statistics of China

Investment growth in infrastructure slowed,

impacted by government tightening policies

Construction Output & Growth

(RMB100 MM)

117,734

22.60%

0

20,000

40,000

60,000

80,000

100,000

120,000

2008 2009 2010 2011

0%

10%

20%

30%

40%

Construction Gross Industrial Output Growth Rate

Source CLARKSON

Global New Ship Deliveries &

Transport Capacity

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 2011

0

100

200

300

400

500

600

700

New Ship Deliveries End-of-period Transport Capacity

Ship-building on the rise but customer

demand caught in cyclical decline


- 17 -

• China’s macro economy and fixed assets investment is

growing steadily

• Unbalanced allocation of financial resources in the

contractionary environment resulted in unmet demand for

financing and substantial growth opportunities for the

Company

• The Company focuses on fundamental industries belying the

economy, which maintained trends of stable growth

• Continuous growth and upgrading of the target industries

benefits the Company’s development

Summary of Business Environment

- 18 -


1. Company Overview



3. Operating Model

- 19 -

Infrastructure,

road, railway

……

Industrial

construction,

water

conservancy,

hydropower

Operating Model (1/5): Continue Industry Focus

Traditional

printing

……

Papermaking,

packaging

……

Continuous Enhancement in

Sub-industries

Industry Breakdown

Increasingly Diversified

As of Dec 31, 2011

Healthcare

21%

Education

17%

Printing

15%Infrastructure construction

15%

Machinery

10%

Shipping

10%

Textile

1%

Others

11%

Infrastructure Construction

Printing

- 20 -

408.1

872.6

115.280.0

42.6

125.9

130.9 60.2

Healthcare Education Infrastructure

construction

Printing

2010

2011

As of Dec 31, 2011

73 115

382500

914

1,287

1,745

Textile Shipping Education Infrastructure

Construction

Machinery Healthcare Printing

Operating Model (1/5): Continue Industry Focus

Expanding Customer Base

Number of customers

Enhancing Customer Base

Customer average annual income

(RMB million)

- 21 -

4.09%

2.97%3.18%

4.33%

2008 2009 2010 2011

8.69%

6.45% 6.25%

9.15%

2008 2009 2010 2011

Net Interest Margin (NIM)

Interest-bearing Assets Yield (Yield)

Operating Model (2/5): Increase Customer Stickiness

The Company focuses on growing with the customers and improving customer “stickiness”

Revenue Breakdown

72%

28%

Existing Customers New Customers

As of Dec 31, 2011

- 22 -

178

474

2010 2011

120170

2010 2011

39

106

2010 2011

Diversified Income Structure Full-spectrum of

Products and Services

Capital

Direct lease,

Leaseback,

Structural

financing

……

Composite

Medical

engineering,

Operating

lease,

Chartering,

Import

agency

…… Advisory

Finance,

Technology,

Management,

Strategy……

Interest Income

(US MM)

Fee Income

(US MM)

Trade & Other Income

(US MM)

Operating Model (3/5): Integrated Business Model

Client

- 23 -

Case Study: Health Care

Financial Service

70%

Advisory

Service

23%

Purifying Engineering

7%

Comprehensive Hospital Services

Hospital

Management

Advisory

Financing

Equipment

Operation

Medical

Engineering

• Hospital operating

room planning

• Engineering design

• Construction

• Management

service

……

Diversified Revenue Breakdown

Operating Model (3/5): Integrated Business Model

As of Dec 31, 2011

- 24 -

Differentiated

initial customer

screening

process

Continuous

refinement of

selection criteria

Risk management

and client

assessment models

customized to the

industries

Stringent

operational process

flow

Advanced IT systems

(CRM, SAP, etc)

5-Tier classification

Synchronized

management between

head office and

industry groups

Credit insurance for

leasing assets

Strong asset disposal

management

Asset

Managemen

t

Industry

Selection

Operational

Control

Customer

Selection

Analysis

Initial trials

Asses

s

In-depth

market trials

Finalize

Establish new

industry

1.5 to

2

years

Stable

Industries

Superior

customers

Qualified

projects Performing

assets

Operating Model (4/5): Prudent Asset and Risk Management

The Company’s risk management system is built around a comprehensive, systematic approach towards asset management

- 25 -

New Industry Incubation

Case Study: Textile

65% 85%

Target

customers

1st system verification

1st project contract signed May 2010

Established textile system

Business Unit Dec 2011

Jan 2010

Aug 2011

2nd system verification

Total no. of projects: 123

Contract amount: RMB644 MM

Textile industry research

Target at cotton spinning &

other upstream industries


The Company selects the industries it operates in, and the customers it

serves, with prudence and professionalism

Customer Selection and Positioning

- 26 -

Management

by Function

• The front, middle and back offices are responsible for

management of the origination, approval, execution and

maintenance processes respectively

Management

by

Classification

• Asset quality is differentiated via a five-tier classification

system, where asset management measures differ by

categories

Management

of Customer

Payments

• Stringent management of customer payments with

continued process improvement; any exception is

managed vigilantly and efficiently

Asset

Disposal

• Diversified monitoring and disposal mechanisms

• Responsive and effective disposal of assets to maximize

recoveries

Continuous improvement of a prudent and effective risk management system with stringent management of non-performing assets


- 27 -

NPA Ratio NPA Write-off Ratio

(US$ ‘000) (%)


1.70%1.90%

1.20%

0.99%

0.60%

2007 2008 2009 2010 2011

963.0

0.0

236.0

35.0 0.0

12.11%

0.00%

0.92%

0.15% 0.00%

2007 2008 2009 2010 2011

- 28 -

1.52

0.39 0.38

0.140.08

2007 2008 2009 2010 2011

Provision Balance &

Coverage Ratio

(US MM)

(%)

30-Day Lease Overdue Ratio

84.6

59.6

42.2

25.8

17.011.4

214%

164%

116%109%

66%76%

2007 2008 2009 2010 Jun 2011 Dec

2011

Balance (US MM) Coverage Ratio


- 29 -

Expanding Domestic &

Overseas Financing Platforms

Domestic

Financing

80%

Overseas

Financing

20%

HK$5.9 Bn raised in the

IPO in Mar 2011 have

been fully invested in

operations as planned

Raised over RMB3 Bn

through dim-sum bonds,

ABS etc in 2011

Indirect Financing

77%

Bonds

9%

Equity

14%

Combining Direct and

Indirect Financing

Operating Model (5/5): Ample and Effective Funding Sources

As of Dec 31, 2011

- 30 -

May 2011: public offering of

RMB1.25 Bn dim-sum bonds

in Hong Kong

Aug 2011: 1st bilateral

overseas RMB loan

Aug 2011: issued 2nd

domestic ABS bonds

Dec 2011: private placement

of RMB750 MM bonds in

Hong Kong

……

Continuous Innovation in Financing

Multicurrency Funding Structure

RMB Loans

90%

USD Loans

10%


As of Dec 31, 2011

- 31 -

20

671 788

99

4,772

2,193

32

853

1,585

3,947

Repayment on

Demand

< 3 months 3-12 months 1-5 years 5+ years

Financial Assets Financial Liabilities

Fully-Matched Asset-Liability Structure

(US$ MM)


As of Dec 31, 2011

- 32 -


1. Company Overview



3. Operating Model

- 33 -

1,3511,971

3,700

6,558

2008 2009 2010 2011

1,4052,084

3,824

7,475

2008 2009 2010 2011

（US$ MM）

Total Assets

（US$ MM）

Loans and Lease Receivables

155211

327

730

2008 2009 2010 2011

（US$ MM）

Revenue

5069

103

172

2008 2009 2010 2011

（US$ MM）

Net Profit

Sustained Strong Asset, Revenue and Profit Growth

- 34 -

97 108178

474

4390

120

170

19

21

39

106

2008 2009 2010 2011

Interest Income Net Fee Income Trading & Other

（US$ MM)

Steadily Growing and Diversified Income(1) Balanced Industry Mix (1)

Note

1. Based on interest income and net fee income before business taxes and surcharges

Diversified Income and Balanced Industry Mix

37.3%29.2%

24.4% 21.0%

9.3%

13.7%13.9%

14.0%

7.9%

10.6% 14.0%

9.1%12.0% 9.0%

6.1%

10.0%

1.0%

2.1% 1.0% 4.2% 8.0%

10.8%

9.4%

28.2% 26.9%25.3%

23.0%

9.0%9.8%

2008 2009 2010 2011

Others

Textile

Machinery

Printing

Shipping

InfrastructureConstruction

Education

Healthcare

- 35 -

4.09%

2.97%3.18%

4.33%

2008 2009 2010 2011

4.05% 3.96%

3.50%

3.04%

2008 2009 2010 2011

Maintained ROAA at Strong Level Superior Net Interest Margin (NIM)

Superior Profitability

- 36 -

NPA Ratio and 30-Day Overdue Ratio NPA Write-off Ratio

(US$ ‘000) (%)

Outstanding Asset Quality (1/3)

1.52%

0.39% 0.38%

0.14% 0.08%

1.70%

0.99%

0.60%

1.90%

1.20%

2007 2008 2009 2010 2011

30-day Overdue Ratio NPA Ratio

0.0

236.0

35.00.0

963.012.11%

0.00% 0.92% 0.15%0.00%

2007 2008 2009 2010 2011

- 37 -

Provision Balance & Provision Coverage

84.6

59.6

42.2

25.817.011.4

214%

164%

116%109%

66%76%

2007 2008 2009 2010 2011.

6.30

2011.

12.31

Provision Balance Provision Coverage

(US MM)

0.42%

0.54%0.59%

0.77%

2008 2009 2010 2011

Credit Cost


- 38 -

2.89%

2.27%

1.68% 1.70%

2008 2009 2010 2011

Special Mention Loans (SML) Ratio

18%

13%

15%16%

18%

15.8%

2007 2008 2009 2010 Jun

2011

Dec

2011

SML Migration Ratio


- 39 -


1. Company Overview



3. Operating Model

- 40 -

• Capitalize on advantage of

combining financing capacity

and industry expertise

• More sources of income

• Discovery of unique value

added areas

• Maximizing ROAA

• Industry-focused • Integrated

services

• Improving

profitability

Pure

financial leasing

Balanced breakdown of

innovative financial

and industry

services

Provide value-added

services on top of

financial leasing

Future Development Strategy

- 41 -

Information

Services

Public

Transportation Logistics Environment ……

Future Development: Horizontal Expansion

Actively seek and incubate emerging industries

- 42 -

Expand & strengthen financial business

• Expand into sub-industries, and potential

upstream and downstream clients in the

existing 7 target industries

• Innovate financial products to improve

capital turnover and return on assets:

short-term financing, factoring, note etc.

Secure funding

• Access equity markets and debt markets with flexibility

• Leveraging both onshore and offshore financing platforms

• Utilize capital market efficiency, and lower dependence on

indirect financing

Continue to promote integrated industry

services

• Strengthen integrated services model:

advisory, trading, brokerage, chartering,

medical engineering, operating lease

etc.

• Further explore opportunities to gain

more income sources, and provide full

support to superior enterprises to

promote their capital development

Future Development: Vertical Extension

Balance breakdown of financial and industry services and maximize ROAA

- 43 -

Appendix：Financial Statements

- 44 -

US$’000 Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2010 Dec. 31, 2011

Loans and accounts receivable 1,341,866 1,976,081 3,700,329 6,558,082

Cash and cash equivalents 42,281 54,444 77,889 844,991

Prepayments, deposits and other receivables 2,588 26,072 28,870 22,398

Available-for-sale investments 15,442 19,668 0 0

Total assets 1,404,688 2,084,037 3,824,164 7,474,702

Interest-bearing liabilities 966,452 1,247,293 2,569,939 4,705,588

Trade and bills payable 33,925 97,262 160,539 357,354

Other payables and accruals 197,186 448,377 532,474 886,186

Total liabilities 1,201,148 1,808,201 3,296,832 5,998,442

Total equity 203,540 275,836 527,332 1,476,260

Equity attributable to shareholders 203,278 275,836 526,912 1,475,622

Key Balance Sheet Ratios Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2010 Dec. 31, 2011

NPA ratio 1.90% 1.20% 0.99% 0.60%

Coverage ratio 66.39% 109.38% 116.38% 214.3%

Credit cost 0.42% 0.54% 0.59% 0.77%

Total liability / total assets 85.51% 86.76% 86.21% 80.25%

30-day overdue ratio 0.39% 0.38% 0.14% 0.08%

Appendix: Summary of Key Balance Sheet Items

- 45 -

US$’000 2008 2009 2010 2011

Revenue(1) 155,119 211,362 326,909 729,895

Interest income 96,791 107,537 178,361 474,028

Net fee income 43,441 89,965 119,768 170,199

Trading and other income 19,494 20,732 38,786 106,178

Cost of sales 65,689 74,527 117,864 342,815

Interest expense 51,198 57,989 87,656 250,007

Operating expense 31,118 41,069 68,893 129,931

Profit before tax and provisions 67,661 98,418 150,082 268,950

Asset impairment 4,693 9,053 16,754 40,096

Profit before tax 62,968 89,365 133,328 228,854

Income tax expense 12,468 20,292 29,910 57,251

Profit attributable to shareholders 50,321 69,073 103,749 171,412

Key Income Statement Ratios 2008 2009 2010 2011

ROAA 4.24% 3.96% 3.50% 3.04%

ROAE 26.45% 28.82% 25.75% 17.13%

NIS 2.14% 1.21% 1.65% 2.95%

NIM 4.09% 2.97% 3.18% 4.33%

Net fee income ratio(1) 27.20% 41.22% 35.55% 22.68%

Adjusted net fee income ratio(2) 46.20% 62.60% 54.68% 41.74%

Cost-to-income ratio 34.40% 29.40% 31.31% 32.53%

Notes

1. Business tax has been deducted in revenue and cost-to-income ratio calculations, but not deducted from interest income, net fee income,

trading and other income, or net fee income for calculation of revenue contribution

2. Equals net fee income / (net interest income + net fee income + net trading and other income)

Appendix: Summary of Key Income Statement Items

- 46 -

Q&A

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Far East Horizon Limited 2011 Annual Results Presentation · Far East Horizon Limited 2011 Annual Results Presentation Private and Confidential - 2 - ... NPA ratio 0.99% 0.60% 39