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Far Eastern, subsidiaries’ shares suffer on legal woes

Shares of Far Eastern Department Stores Co (遠東百貨) and those of other Far Eastern Group (遠東集團) companies extended declines yesterday ahead of a key court ruling against chairman Douglas Hsu (徐旭東) expected today.

Far Eastern Group companies may face near-term downside pressures if the ruling on charges of breach of trust and forgery goes against Hsu over his role in the management takeover of the Pacific Sogo Department Store (太平洋崇光百貨) in September 2002, an analyst said yesterday.

“If Hsu is convicted at the trial, investors will likely worry about the leadership matter at the group because there’s no obvious successor to him in sight,” Allison Lu (呂雅菁), an analyst at Capital Securities Corp (群益證券), said by telephone.

Prosecutors are seeking a 30-month jail term for Hsu.

In Taipei trading, shares of Far Eastern Department, the nation’s largest publicly listed department store operator, closed 5.98 percent lower at NT$22.8 yesterday.

Shares of other Far Eastern Group subsidiaries declined as well, with Far Eastern Textile (遠東紡織) dropping 4.08 percent to NT$29.35 and Asia Cement Corp (亞洲水泥) dipping 1.88 percent to NT$34. U-Mine Marine Transport Corp (裕民航運) shares were down 0.12 percent to NT$81.9 and Far Eastern International Bank (遠東商銀) ended down 0.13 percent to NT$7.99.

Shares of Far Eastern Department have plunged 9.17 percent in two days following a surprising second-quarter loss and the recent bribery allegations against Hsu.

Hsu denied on Wednesday that he had offered the former first family US$11.5 million in bribes to gain control of Pacific Sogo Department’s Chinese subsidiary.

The retailer on Wednesday reported NT$10.1 billion in first-half revenue, up 7.37 percent year-on-year. But the company’s net profit plunged by 476 percent to NT$185.37 million for the first six months of the year, with earnings of NT$0.16 per share.

“I’m even surprised at Far Eastern Department’s second-quarter loss ... which is much weaker than I expected,” Lu said, attributing the bleak quarterly performance to its store renovations in China and the impact of the Sichuan earthquake in May.

Andre Chang (張致竑), an analyst at Citi Investment Research, said Far Eastern Department posted a loss of NT$115 million, or NT$0.11 loss per share in the second quarter, which is 16 percent lower than Citigroup expected.

“As most investors didn’t see this coming, so we see short-term risk on the stock, especially with allegations of the chairman’s bribing of the former first family,” Chang wrote in a client note released late on Wednesday.

However, “Once this negative surprise settles, the focus should shift to a strong second half this year,” he wrote.

Citigroup offered a “buy” recommendation, with a target price of NT$32 for Far Eastern Department shares, hinting they are expected to recover along with the third-quarter result.

Looking ahead, Lu said a slowing economy at home and in China as well as the latest bribery allegations would pose downside risks on the Far Eastern Group companies in the near term.

But Chang said that based on Hsu’s press conference on Wednesday, the group seemed to have reasonable explanations for the share purchase of Sogo’s Chinese operation from ABN AMRO Bank, so that prosecutors will need strong evidence to substantiate their accusations.

“This is not an easy task in our view,” Chang wrote in his note.
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