HFL - Financial results for the year ended 31 August 2025

LEGAL ENTITY IDENTIFIER: 2138008DIQREOD38O596

HENDERSON FAR EAST INCOME LIMITED
Financial results for the year ended 31 August 2025

This announcement contains regulated information

Investment Objective
The Company seeks to provide shareholders with a growing total annual dividend, as well as capital appreciation, from a diversified portfolio of investments from the Asia Pacific region.

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CHAIRMAN’S STATEMENT

Dear Shareholder,
As some of you may recall, my letter two years ago contained a sombre assessment of our results, reflecting a frustration for all of us that ultimately led to a change of portfolio manager and some shifts in our approach. That process of change has continued in the ensuing period with careful adjustments to holdings, position sizes, use of our options strategy, levels of turnover and methods of dividend capture. Our most recent results confirm the value of these changes and it is with pleasure that we present them now in this year’s annual report to shareholders. The focus of our efforts during the past two years has been to achieve a better balance, a balance that delivers strong dividends as well as underlying capital growth. We believe we are now firmly on the right path to achieve this combination of income and capital growth with consistency over time, recognising that all markets have ups and downs. Our Fund Manager’s report sets out the details of both what has changed and how, but I want to focus on a few key points from the Board’s perspective.

The performance of Asian equities in the year to 31 August 2025, shows a period of significant transformation and resilience. Amidst evolving global economic landscapes and regional dynamics, Asian markets have been remarkably adaptable, influenced by rapid technological advancements, growing financial inclusion and major corporate reform. Collectively, these factors have re-shaped investment patterns and outcomes, making this year an intriguing chapter in the ongoing story of Asia’s economic development.

Performance
NAV total return for the year ended 31 August 2025 was 12.7%, only marginally behind the FTSE World Asia Pacific ex Japan Index at 14.1% and the MSCI AC Asia Pacific ex Japan High Dividend Yield Index of 13.9%, representing a major improvement in capital growth. The share price total return over the same period was 13.6%.
Pleasingly, our capital return per ordinary share is now in positive territory at 1.42p (2024: loss of 3.68p) once again.

Our dividend yield remains steady at 10.8%, a full 4.2% ahead of our closest peer in the AIC sector.
Taking account of the more balanced composition of the portfolio following our strategic review last year, we will be adopting a new comparator index – the MSCI AC Asia Pacific ex Japan Index and will be using this when reporting to you on the half-year financial results.

Dividend
We declared four interim dividends in respect of the year ended 31 August 2025. These amounted to 24.90p per ordinary share, an increase of 1.2% over the prior year and maintaining our 18 year track record of increasing dividends.

The dividend has been substantially covered by portfolio revenues with a contribution of only £1.5m from reserves. A return to corporate dividend growth in the region gives us confidence that our long-term dividend growth opportunities remain very much intact for the future.

Share issuance
I am pleased to report that the Company traded at a premium throughout the period, the only constituent of the AIC Asia Pacific Equity Income sector to do so and indeed one of only thirteen investment trusts to regularly issue shares outside of a corporate action in the current calendar year.

In the year to 31 August 2025, the Company issued a total of 17.6m ordinary shares at a premium to NAV generating £39.1m for further investment. In the period from the year end to 7 November 2025, we issued a further 6.3m shares for £15.6m.

Board composition
In keeping with our ongoing Board refreshment plan, Julia Chapman retired from the Board on 29 October 2025, leaving behind an outstanding period as our Senior Independent Director and a guiding force for all of us as we have navigated a difficult period of fund manager and market transition. Carole Ferguson succeeded Julia as the Senior Independent Director on her retirement.

On 5 June 2025, Steven Wilderspin joined the Board as a non-executive director. He brings extensive accounting and auditing experience to the Board and is our Jersey resident director, thereby fulfilling our obligations to the Jersey Financial Services Commission.

Annual General Meeting
The annual general meeting will be held at 12.30 pm on 20 January 2026 at the offices of our investment manager at 201 Bishopsgate, London, EC2M 3AE.

The Notice of Meeting is included at the back of this annual report and I encourage all to attend the meeting if they are able to, or to vote their shares ahead of the meeting. For shareholder democracy to be effective, your vote is important and appreciated.

The Fund Manager will provide his usual presentation on the financial year just concluded and his outlook for markets in the Asia Pacific region in the current year.

Outlook
After a fraught and confusing period for Asia’s equity markets, the outlook for stocks and dividends in the Asia Pacific region is decidedly positive, notwithstanding a few areas of concern. Despite the challenges posed by US trade tariffs which continue to morph and change, the region shows strong potential for growth. This growth is being fuelled by relentless technological innovation, a massive growth in financial inclusion and corporate reform in several key markets. These elements, along with the burgeoning middle class who are now spending again, are setting a solid foundation for market expansion and increased investor confidence. As trade relationships adjust and evolve, companies in the region are emerging more resilient and competitive, potentially leading to higher dividend payouts and attractive equity performance. Investors can look forward to capitalising on these developments, making the Asia Pacific markets a compelling prospect for the future.

Ronald Gould
Chairman



FUND MANAGERS’ REPORT

Introduction
It is useful to reiterate our comments from the half-year report highlighting elevated global volatility, this time induced by the new US administration’s broad policy announcements, in particular, with respect to trade. This was illustrated perfectly by the clash of positive sentiment from loosening monetary policy as the Federal Reserve cut rates by 50bps in September 2024, the first cut in over four years, against the severe negative market reaction to the 2 April 2025 Liberation Day tariff announcements. However, there was another twist as equities then staged a quite remarkable rebound with the MSCI AC Asia Pacific ex Japan Index rising 31% from the trough of 9 April 2025 to the end of the period.

In the context of a weaker US dollar and uncertainty around the impact of the various new policies, particularly in terms of trade tariffs, it is also worth reiterating our view that this remains a pivotal period with a potential reversal of the performance differential between US and Asian equities. The broader MSCI AC Asia Pacific ex Japan Index outperformed the S&P 500 Index during the period for the first time since our financial year ending August 2017. However, the drivers of performance were not broad based with North Asia significantly outperforming the Indian and ASEAN1 markets, and it was notable that, by sector, technology and consumer discretionary were by some distance the winners and energy the laggard.

Improved sentiment around China was key to the rebound. This was despite lacklustre macro economic data which confirmed ongoing pressures on the consumer in a prolonged period of deflation alongside a weak property market. The pivot away from India reflected a huge valuation disparity between the two markets as investors digested the steady flow of piecemeal stimulus measures from the Chinese government, addressing the property and stock markets. These positives were followed by an unexpected announcement on DeepSeek, the domestically developed Artificial Intelligence (‘AI’) model that upended longstanding assumptions about AI competition and China’s position. The low cost nature and high performance of the model surprised global investors, leading them to re-assess the true level of progress that China had made in this key technology battleground and to take more seriously a whole range of tech related developments in China.

In contrast, India was a weak market following years of stellar performance. The market has run out of steam with nominal GDP growth slowing, initial signs of the credit quality of Indian banks worsening, weaker consumption trends and employment prospects depressed. This has all been exacerbated by the comments from the US as they significantly increased tariffs on Indian imports and the Indian rupee hit record lows against the US dollar. Stretched valuations encouraged an investor shift that has seen a marked setback in Indian stock market results in the period.

Performance
The NAV total return was 12.7% in sterling terms over the period with the share price total return at 13.6%. This compared to the FTSE World Asia Pacific ex Japan Index, which returned 14.1%, and the MSCI AC Asia Pacific ex Japan High Dividend Yield Index, which returned 13.9% over the period. The more growth oriented FTSE index benefitted from its larger weighting in low yielding Taiwan Semiconductor Manufacturing Company (‘TSMC’) and China technology names Tencent, Alibaba and Xiaomi. The MSCI index was a beneficiary of its traditionally large weighting in Chinese financials. While the NAV total return underperformed the two indices, the portfolio produced a second consecutive year of double-digit NAV total return as we shifted away from deep value high yield names that would not have participated in recent market rallies towards a delicate balance between high yield and high growth names. We feel this approach has allowed us to broadly match these growth indices, whilst providing a significantly higher dividend yield.

In future, we will compare performance versus a single index, the broader growth and more commonly used MSCI AC Asia Pacific ex Japan Index as it better reflects our recent shift towards a balanced growth and income composition. This index returned 14.7% over the period, supported by large weightings in the technology sector.
In local currency terms, the FTSE World Asia Pacific ex Japan Index rose 18.5% with the 4.4% strength in sterling impacting returns for the UK investor. China, Hong Kong, South Korea and Taiwan posted strong performance, however, underlying this were structural growth drivers unique to each market. In China, we have mentioned the great revival of technology names following positive news flow on AI investments. Equally important, however, was the performance of high dividend paying State Owned Enterprises (‘SOEs’). Improving market sentiment especially benefitted SOEs and domestic retail investors, and insurance companies sought higher yielding domestic equities in the face of falling interest rates. In Hong Kong there was a rebound in the property market as HIBOR, the interbank rate, fell dramatically and supported the attractiveness of our high yield property and telecommunication holdings. In Taiwan, the dominance of AI related names such as TSMC, the global leader in semiconductors, boosted performance as US tech giants battled to invest ever increasing amounts into AI. Finally, South Korea was a huge beneficiary of renewed corporate reform under a recently elected president, with the market up over 75% in US dollar terms by the end of October 2025.

India was the worst performer over the period, followed by the ASEAN markets of Indonesia, Malaysia, Philippines and Thailand. Our exposure to these markets is limited, though we continue to believe India and Indonesia are attractive long term growth markets. Developments over the course of the period have, though, led us to reduce our exposure here. For India, a more positive outlook on private sector capital expenditure, with improved inward foreign direct investment and employment prospects is key. Indonesia is enacting reform of its own, but some of the communication has been less than clear and recent unemployment and static growth has led to some consumer backlash. We are inclined to give the government the benefit of the doubt given some well-planned initiatives to boost growth.

Our key contributors to performance were high yield value companies in China which have been firmly out of fashion for several years. An example is China Hongqiao, the largest global aluminium manufacturer, which appreciated by over 90% whilst paying a double-digit dividend yield. Our China financial holdings, namely China CITIC Bank, China Construction Bank and New China Life, all performed well whilst paying high dividends. Alongside this, we were able to utilise our option strategy to generate income from strongly performing growth companies such as SEA Limited, whose valuation nearly doubled. Quanta Computer and TSMC were also strong contributors. Volatility has allowed us to expand utilisation of our option strategy, allowing us to purchase more of these exciting growth companies whilst maintaining a high and growing dividend per share.

Key performance detractors in the period were the remaining positions in India and the energy sector, despite our low positioning in these areas. Bharat Petroleum, Woodside Energy and Infosys were underperformers and were sold in the period. Power Grid and GAIL in India were weak in the period, but we continue to hold these companies as they increase their dividends from high returns generated from key infrastructure assets. The weaker macro data from Indonesia hurt the performance of Bank Mandiri, another detractor over the period. With Indian valuations now somewhat less stretched, we remain alert to a return pivot to investments in that important market.

Revenue
Dividend income from companies held in the portfolio fell by 11.1% while total income decreased by 3.1% compared to last year. This reflects a return to more normal revenues following the exceptional increase in income last year. Despite this, the year ended 31 August 2025 generated the Company’s second highest revenue return per share ever as dividend growth continues to surprise positively in our region. Notably, the financial year just ended, has produced a positive capital return per share for the first time since 2017, evidence of our subtle shift toward achieving capital upside along with high income.

The geographical split of our income remains diverse with significant increases from Taiwan and Indonesia, and continued high income from South Korea. The corporate reform program in South Korea is driving a fundamental shift in the approach to shareholder returns and it remains a key income market for the years ahead. China has followed suit and is addressing underperformance of SOEs by requiring them to focus on shareholder returns.
More recently, Singapore has launched its own version of a corporate reform program. These initiatives are very positive for income growth in our region.

Portfolio activity
At a portfolio level, it is the shift in some of the country weights that is most notable during the period, with a significant reduction in exposures to Australia and India, which were used to fund larger exposures in China. Despite this, our position in China remains broadly neutral versus Asian indices as we remain cautious on the overall macro picture. The reduction in Australian holdings mainly relates to a more negative view on the miners with the positions in Pilbara Minerals, Rio Tinto, BHP Group and Fortescue sold as capex grows above expectations, negatively impacting dividends. In India, we sold our information technology services holdings, Infosys and HCL Technologies, to fund more attractive growth in Tencent and Alibaba.

We also sold Indian holdings NTPC and Bharat Petroleum following their strong performance which compressed the dividend yields amid increasing concerns about the macro-economic outlook for the country and a weakening earnings outlook. Our new additions in North Asia have been superior replacements including Quanta Computer, SK Hynix and SK Square in the technology sector and high yield property and financial names in Hong Kong and China, namely Kerry Properties and New China Life.

New China Life has a track record of strong growth in new business, increasing gross premium income, which is supported by various distribution channels and the insurer’s strong brand value. It is committed to higher shareholder returns via dividends. Kerry Properties, a property developer based in Hong Kong, has been reducing its financial gearing ratio and continues to pay high dividends. Despite the weakness in the Chinese property sector, Kerry’s pipeline development properties are located at prime locations in Hong Kong and tier-one markets in China, where the sales recovery has been more positive. The purchase of China Hongqiao was based on an attractive valuation and high yield as the company reported a significant improvement in its gross profit margin in its full-year results and announced a higher-than-expected dividend pay-out as aluminum prices strengthened. An extensive share buyback programme and high dividend yield continues to drive shareholder returns from the company.

Outlook
We began by referring to the importance of a number of exciting structural growth themes in Asia which had been masked somewhat by geopolitical headlines. However, the potential for these regional themes to support long term performance is undiminished. The potential is rapidly turning into earnings growth and the opportunities are broader than our initial expectations. Growth is being driven by several factors. These include Asia’s position as a hub for technology supply chains, crucial to the development of AI given strength in hardware and semiconductor manufacturing. There is also an incredible opportunity for financial companies in markets such as Indonesia, the Philippines and India where hundreds of millions of bank accounts have been opened in recent years. Infrastructure including renewable energy continues to grow with record levels of spend in India, Indonesia and China. The emergence of strong domestic brands from China succeeding in foreign markets is another new trend and along with more widespread corporate reform in South Korea, China and Indonesia.

These trends alongside the faster than expected dividend growth in recent years are a compelling mix, unmatched by other markets. We are now benefitting from low relative valuations and some of the lowest dividend payout ratios globally, which leaves significant room for improvement in the years ahead. The future of China will be inextricably linked to the fortunes of the region and the rebound of that market has been supported by a calm, measured response from its leaders in the face of significant global shifts, leaving investors reassured by the number of policies left in its arsenal.

Sat Duhra
Fund Manager

1. Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam


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Sat Duhra
Fund Manager
Henderson Far East Income Limited
Telephone: 020 7818 5919

Dan Howe
Head of Investment Trusts
Janus Henderson Investors
Telephone: 020 7818 4458

Harriet Hall
PR Manager
Janus Henderson Investors
Telephone: 020 7818 2919

Neither the contents of the Company’s website nor the contents of any website accessible from hyperlinks on the Company’s website (or any other website) is incorporated into, or forms part of, this announcement.

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