CK Asset Holdings Limited (1113) Earnings Call Transcript & Summary

Welcome to CK Asset Holdings 2025 Interim Results Analyst Briefing. We have with us today 2 Executive Committee members, Mr. Simon Man and Mr. Gerald Ma, presenting the group's interim results and to answer questions the audience may have. [Operator Instructions] Thank you, Mr. Man and Mr. Ma.

Thank you, Sophia. Let's get right to it. 2025 interim results highlights. Revenue, HKD 39.13 billion, up 12.7% from 2024. Profit before IP revaluation, HKD 6.8 billion, on per share basis, HKD 1.94, up 1.6%. We recorded an IP revaluation deficit of HKD 503 million. As a result, profit attributable to shareholders came to HKD 6.3 billion or HKD 1.80 on a per share basis, down 26.2%. We declared a dividend per share of HKD 0.39, which is the same as first half 2024. Net book value up 1.7% to HKD 112.65. Our recurring revenue has gone up to HKD 31.76 billion, and our recurrent profit contribution has improved to almost HKD 8.5 billion. As a percentage of the total, 81% of our revenue and 83% of our profit contribution are now recurring in nature. 27% of our contribution from Hong Kong, 15% from the Mainland and 58% from overseas. Turning to divisional performance. Property sales. Revenue came to HKD 7.34 billion, up almost 59%. Profit contribution, HKD 1.77 billion, down 2.9%. Contribution margin was 24%, which is pretty decent as an overall margin, but weaker compared to 2024, and I'll explain -- give you some highlights and details in the pages to follow. Major contribution from 3 projects highlighted here, Regency Garden from Shanghai, the Greenwich from Beijing and La Grande Ville from Beijing. If you look at the contribution margin from the Mainland and overseas, they are pretty healthy, 38.4% and 30.6%. You see that the Hong Kong contribution margin was 2.6%, largely and because of provisions we took for 2 projects, Victoria Blossom and Blue Coast. If we exclude these 2 numbers, the provisions that we took for these 2 projects, the pre-provision margin would have been close to 42%. We still have HKD 28.5 billion worth of contracted sales, which we have not recognized. The bulk of which, almost HKD 23 billion is scheduled for recognition in 2025 later on this year. So we do have quite a bit of cash coming in towards the end of the year and mainly from a couple of projects, the Blue Coast, the Coast Line, Perfect Ten in Singapore and The Greenwich in Beijing. Property Rental, HKD 3 billion of revenue, down 3.7%, HKD 2.3 billion of profit contribution, down 5.3% and still a pretty healthy contribution margin of 77.1%. Overall occupancy in Hong Kong was around 86% and our European portfolio came in at over 99%. Major contribution, Cheung Kong Center, HKD 477 million; Hutchison Logistics Center, HKD 328 million; and The Whampoa HKD 315 million. If you look at the revenue by use of property, you see a big drop, 11.5% for our retail properties from HKD 971 million to HKD 859 million. If you look at the profit contribution by geography, you see that the biggest drop was from the Mainland, 43.9%, HKD 139 million, down to HKD 78 million this year. This is because that the joint venture we had in Shanghai, Shanghai Westgate Mall and Tower expired. So we no longer -- had expired, so we no longer have the contribution from the Mainland or from those retail properties. In addition to that, if you look at the social infrastructure, we recorded a 3.5% increase from HKD 648 million to HKD 671 million of revenue. So this does not include the social infrastructure we have from Sweden and our German portfolio, which we acquired late last year. They were structured as an investment, so it's not included here. So on a really apple-to-apple basis, if you had included the social infrastructure from Sweden and Germany and excluded the impact of Shanghai Westgate Mall, both on the revenue and on a profit contribution basis, there would be a slight increase compared to 2024. Altogether, we have 22.4 million square feet of investment properties, but we recorded a fair value decrease of HKD 542 million, which is a before tax and before controlling -- noncontrolling interest number. Mainly -- that number mainly was caused by the reduction in fair value of 1881 Heritage. Turning to the Hotel and Serviced Suite division. A solid revenue number of HKD 2.2 billion, up 2.9%. Profit contribution, HKD 794 million, down 3.5%, largely due to last year that there was a onetime accounting write-back. So if you exclude that number, actually, this year, both revenue and profit contribution would have a slight increase. So a pretty solid performance in a very competitive environment. Average hotel room occupancy rate has gone up to 89% and our average service apartment occupancy rate is at a healthy 88%. 248 million square feet under our management right now, HKD 444 million of revenue, HKD 182 million profit contribution and a very solid 41% of a profit contribution margin. Turning to our Pub Operation. So the U.K. is still experiencing a bit of inflation and disposable income is not spectacular. So all in all, macro conditions are still very tough for the sector. Revenue came to HKD 12.5 billion, up 5.9%. Profit contribution, up 5.4% to HKD 629 million. Infrastructure and Utility Operation. You see the respective CKA interest in these joint ventures and 11.7% increase in contribution compared to 2024, now up to almost HKD 4.6 billion. Largely, there were a couple of factors. One, there's an FX movement that impacted the number. The U.S. dollar has gone down against most currencies compared to last year. So that's a bit of help there. And also this year, we have a full 6 months contribution from Phoenix Energy, basically the Northern Island gas distribution business and also the renewable wind farm, which we acquired last year and under the CK William joint venture. Also, we have decent performance from U.K. Power Network and Northumbrian Water as well as Dutch Enviro Energy, which is what we call AVR, the waste management business in the Netherlands. Part of the -- we had a fire a couple of years ago, which I think part of the rebuild has been completed and started providing contribution in the first half already. So that explains the solid improvement compared to 2024. I'll turn over the next few pages to Simon.

Thank you, Gerald. At 30th of June 2025, the group's interest in the listed real estate investment trust remain approximately the same as we have at the year-end 2024. 35.4% in the Hui Xian REIT, which own and manage 11.8 million square feet of hotels and serviced suites, office and retail properties on the Mainland and 25.7% in the Fortune REIT, which own and manage 3 million square feet of retail properties in Hong Kong and Singapore, and 17.6% interest in the Prosperity REIT, which own and manage 1.3 million square feet of office, retail and industrial properties in Hong Kong. Hui Xian REIT is an associate, and we share a profit of HKD 77 million for the first half in 2025, and we share a loss of HKD 4 million in the first half in 2024. For the distribution received from Fortune REIT and for Prosperity REIT, HKD 107 million for the first half in 2025, which has been recognized as investment income compared with HKD 113 million in the first half in 2024. For the Gearing and Maturity Profile, the group hedge bank and other loans amounted to HKD 54.4 billion at 30th of June 2025, of which HKD 11 billion will be repayable within 1 year, HKD 37.5 billion within 2 to 5 years and HKD 5.9 billion beyond 5 years. Taking into account our cash on hand, bank balance and deposits of HKD 33 billion, we have a net debt of HKD 21.4 billion. It was 5.4% for the net debt to shareholders' fund ratio. And for the net debt to net total capital ratio, it was 5%. Currently, Moody's gave us an A2 stable credit rating. And for Standard & Poor's, we have an A stable credit rating. Our Landbank at 30th of June 2025, a total of 124 million square feet, 67 million square feet was held under development, 6 million located in Hong Kong, 58 million square feet on the Mainland and 3 million square feet overseas. A 22 million square feet was held for rental with 13 million in Hong Kong and 4 million square feet on the Mainland, 5 million square feet overseas. 9 million square feet was held for hotel and serviced fleet operation with 8 million square feet in Hong Kong, 1 million square feet on the Mainland. And 26 million square feet of Pub properties was held for Pub operation in the United Kingdom. So overall, 27 million square feet was located in Hong Kong and 63 million square feet was on the Mainland, 34 million square feet located overseas.

So that's the end of our presentation, and now we'll open the floor -- a virtual floor for questions. Sophia will be our moderator, and then I will try to direct traffic and Simon and I will take on these questions one by one. Thank you for your questions, by the way.

Right. Thank you very much, Mr. Ma and Mr. Man for the presentation. The questions I've tried to consolidate them by topic, and let's start with the group's earnings. The first question, what is your view on earnings in the next few years, particularly your earnings from development operations?

Maybe Simon will take this one.

Okay. Earnings from our recurring income businesses will continue to be strong, supported by contribution from our investment property portfolio, hotels and serviced suite operation, infrastructure and utility asset operation and pub operation, et cetera. However, earnings from our development operations in the next few years will not be significant.

Thank you, Mr. Man. We have received some interest on our capital allocation strategy. So what is the company's capital allocation strategy for the remainder of the year? Are there plans for share buybacks, increased dividends or new acquisitions? Does CKA still consider maintaining a war chest a priority?

I'll take on this one. I think the overriding principle is that we're not going to expand or invest at the expense of leverage. And we have no issue keeping a bit more cash or having a very low gearing. The macro environment is very uncertain. Although it looks like interest rates from last night, it looks like interest rates in the U.S. will go down pretty quickly. And -- but we are going to be very careful in managing our cash flow. On the other hand, we are generating a significant amount of cash each year. So we do have plenty of resources to make new investments. And you do see quite a bit of coverage on us being interested in bidding for our new sites. We did bid for the Tuen Mun site we didn't win or enter into corporate lending transactions. We are interested in that. All subject to returns and price being attractive, we are keen to invest more in commercial and retail properties and land sites in Hong Kong. We like buybacks as well, although our share price has gone up a bit. As for dividends, it will include to be -- it will continue to be linked to current year profit and medium-term outlook. I do see a question -- a couple of questions online talking about whether dividend will be linked to our -- the profit that we will book for the U.K. rail. It's not going to be too significant. So I don't think it will be connected in that sense. So I think for you to take home as a guidance, dividend is linked to current year profit and overall outlook in the future.

Thank you, Mr. Ma. There is a follow-up question received on the group's acquisition strategy. So what are the key criteria for new investments and acquisitions? Are there specific sectors or regions being prioritized for expansion in the near term?

So we are very much focused on returns and risks rather than sectors or regions. So investing in a business, a building or lending against an asset or a business that can generate an annuity, an attractive return over and above our cost of capital, that's what is most appealing to us. In Hong Kong, as I said earlier, we are interested in land replenishment, property investments and corporate lending transactions. We are very keen to put some money to work in Hong Kong. [Foreign Language]

Okay. So switching gears to the topic of Hong Kong's property market. What is your view on the Hong Kong residential property market? How will you pace and price your upcoming launches? As the group has received presale consent for Victoria Blossom for a while, when will you be launching this project?

So in the last couple of months, volume in the primary market, especially smaller units has picked up and largely supported by the lower HIBOR environment. Price momentum is still lacking due to the high inventory level. Developers are still focused on clearing their stock. So launch pricing should continue to be generous. Victoria Blossom, you've seen some coverage recently will be launched as soon as we're ready. The smaller units should be quite popular and the sales team obviously will do their very best to generate a decent response. So connected with that, I saw some questions on the amount of provision we took on Victoria Blossom together with Blue Coast is roughly altogether HKD 1.1 billion.

Thank you, Mr. Ma. Could you give us an update on the completion schedule of the Anderson Road project?

Simon?

Okay. We are working with the relevant government departments to find the best way forward and a delay of the project completion date cannot be avoided. But the impact on CKA's operation is small.

Right. Thank you very much, Mr. Man. Continuing on the topic of property, given how property transactions and prices have been trending, what kind of development margins should we expect for the full year as we will likely have more development bookings in the second half as Blue Coast is completed?