CTF Services Limited (659) Earnings Call Transcript & Summary

Thank you for joining NWS Holdings' Financial Year 2020 Final Results Analyst Presentation. I'm [ Catherine ], today's emcee. First of all, let me introduce our panel members: Mr. Gilbert Ho, Executive Director; and Mr. Ben Wong, Director of Corporate Development and Investment. Gilbert and Ben will first present our final results to all of you, then followed by the Q&A session. [Operator Instructions] Without further ado, let me pass the time to Gilbert. Gilbert, please.

Thank you, [ Catherine ]. Let me briefly go through a few slides on introductions before Ben will go through the details of the financial results of our financial year 2020. As you can see from the first slide, I think it is very important to reiterate our core competency for NWS Holdings. We have a very solid and resilient business with visible recovery prospect. Even during the COVID situations, there's no structural change in our resilient operations and our assets. Our long-term sustainable growth is still intact with our organic growth in roads, insurance and constructions. And we also have opportunistic acquisitions looking forward to the distress roads, infrastructures and logistics as well as insurtech and digitalizations. We have a very prudent financial policies underpinning for growth and external shocks. We have a very well-managed financial profile, stable and manageable gearing at around 31%, which is similar to last year's. We have a very quality business and assets with strong recurring cash flow. With our strong management track record with meaningful portfolio restructuring progress, over the last 2 years, despite adverse market conditions, we have successfully disposed a number of our noncore business, including BCIA, our bus and ferry business as well as 2 ports business. At the same time, we acquired FTLife Insurance and 3 roads in the Central China areas. With these strong positions, we urge to maintain our sustainable and progressive dividend policies with our strong balance sheet, which able to absorb any shocks and uncertainties for our shareholders. During the COVID-19, we have our solid and resilient business with very visible recovery prospect as you can see from the slides with our constructions, which still capture new premium projects in public and private sectors. In our logistics sectors, our core business, ATL, we have a very strong and steady AOP contributions in the financial years. For our roads business, even after the suspension of the toll fees, we see very strong growth in June year-on-year with traffic growth above 3%. We also see very strong recovery on our water and waste treatment business after the release of the COVID-19 lockdown. For our insurance business, it is very well positioned for recovery with incoming MCV. We have launched new products in May and also in September to attract new customers in Hong Kong. Obviously, for our Hong Kong CEC, it is hard-hit at the moment with the lockdown in Hong Kong, but we are very well positioned for recovery with incoming travelers after the release of the lockdown. With our hospital business, it still expanded operationally with new clinics going to open in Central next month. During this period, it is very important for our risk management, so I'm going to spend a couple of seconds to talk about risk management. As we have been talking about the defensive nature of NWS business over the last few years, it is very important now, especially during this difficult period. You see the resilient AOP and cash flow in a number of our business, especially in our construction business, in our insurance business as well as in our environmental business. And with the strong, solid and quality assets in our roads and ATL, it still generated significant cash flow during this COVID period. And for the business, which currently affected by COVID-19, we have a very well-diversified customer base in our aircraft leasing business. We have a very risk adverse portfolio mix. As we have been emphasizing before, we have a young and narrow fleet -- narrow-body fleet proven to be very resilient, and we have a very well-diversified customer portfolio with 62 lessees in 35 countries. We have a very solid financial positions with strong liquidity. For our dividend policies, we have -- we have stated in our last financial years that we will maintain a sustainable and progressive dividend policies that's supported by a strong balance sheet. At the moment, including the noncore asset disposal, which generated around $1.7 billion cash, and also cash on hand with around $13 billion and also the unutilized committed banking lines of around $14 billion, we have well over $20 billion available capital for our growth and also for our dividends. For the last 3 years, NWS has been going through a strategic development phase. We have disposed a number of assets, as mentioned before, including BCIA, 2 ports, our ferry business and most recently our NWS Transport Service, which is our bus business. We have strengthened our management team with the appointment of new executive members with more capital market focus, which are in line with our shareholders' expectations. For our business portfolio, at the same time while we disposed our noncore assets, we have acquired new business which is generating growth, including FTLife Insurance and also 3 roads in Mainland China. We also redefined our business into core business and strategic portfolio and also pledged for the sustainable and progressive dividend policies. We aim to rejuvenate our business and also have agile management to create and unlock value for our shareholders. As you can see in this slide, we have a very prudent financial policies with ample cash on hand and also unutilized committed banking lines. Our net gearing ratios is around 31% as of June 2020, which is more or less stable compared with December 2019. As you can see, our debt maturity profile is very well spread, and all of our bank facilities for 2020 has already been refinanced. So I go into the financial summaries of the 2020. Our revenue slightly dropped to $20.9 billion (sic) [ $25.9 billion ] with around 3% decrease compared to 2019. And our AOP, attributable operating profit, dropped around 25% to $3.5 billion. Overall, our profit for the year dropped around 80% to $835 million. Our dividend per share maintained stable at $0.58 per share. In terms of AOP by segments and also by geography, our Roads segment and Construction segment together already contribute over 50% of our AOP. And together with Aviation and Insurance, the core business represent around 90% of our AOP. And together, as you can see, our AOP in the core business only slightly dropped around 10%, which demonstrate this resilient business nature of our core businesses. In terms of geographical area, our Hong Kong contributions increased from 28% to 49%, thanks to our insurance business, which was completed in 2019 October. So I'll pass to Ben to go through deeply into each of our core businesses and the business performance.

Thank you very much, Gilbert. I will now talk about the Roads segment. In Roads, we have been seeing some expedited recovery in June 2020. And together with our new contribution from our Changliu Expressway, our portfolio increased by 3% year-over-year. And secondly, excluding the Beijing-Zhuhai Expressway and the other 3 anchor roads, the overall recovery is 1% year-on-year. And if you look at the toll income for June 2020, it's almost reaching the same level as December 2019. So we have clearly shown some strong recovery, despite we have had a toll fee exemption in February and in May -- till May. And if you look at the outlook, we have seen strong recovery post-COVID-19 with the underlying traffic remains solid, and we look to capitalize on distressed opportunities and also continue to enrich our road portfolio in China. Secondly, we talk about aviation. Goshawk is in a very sound financial position to defy any headwinds. And if you look into our liquidity position, it's currently with USD 1.4 billion liquidity available. And as explained earlier, we have a young and well-diversified portfolio with the most liquid narrow-body aircraft. So it will defy some of the headwinds. And if you look into the rental deferrals, we have granted 9 deferrals to our customers, which total about 24 aircraft. And the aggregate represent 1% of our Goshawk's annual revenue. And if you look into the collection rate from the airline customers for the first half of 2020, it was at 78%. And if you look into the interest rate swap contracts, our mark-to-market loss is $146 million compared to 2019 of $158 million. The outlook for Goshawk is, if you look into the strong fundamental and sound financial position of Goshawk, it's well prepared to weather any crisis. And with the $1.4 billion liquidity available, it will satisfy all the CapEx needs and any refinancing for the next 18 months. Although the industry outlook looks a bit uncertain, the young and narrow-body aircraft portfolio has proven to be less risky in terms of all the assets within the aircraft leasing segment. I'll then talk about construction. If you look into our construction business, Hip Hing has been doing very well with a very strong pipeline, contracts on hand at HKD 53 billion with a drop of 5% year-on-year and a backlog of $36 billion, dropping 13% year-on-year. We have seen some new contracts coming in during the fiscal year 2020 in an aggregate of HKD 8.8 billion. You have a very well-balanced project pipeline and also project on hand, which can mitigate any volatility in the market. And if you look at the breakdown, 62%, private, and 38% is from government and institutions. We also have one of the star project this year, InnoCell, using Modular Integrated Construction method, and it is expected to complete by the end of this year. It's also a proof point and also a ESG focus because it reduces a lot of construction materials -- construction material waste when we can do a lot of the fitting out off-site. So if you look into the outlook of construction, we remain positive on the outlook of the industry over the medium to longer term, underpinned by strong demand from both the government and private sector, although the industry and the business environment remains challenging. I'll then talk about insurance. FTLife Insurance has been our wholly owned subsidiary since November 1, 2019. With the 8 months complete -- since completion, we have shown strong AOP contribution despite COVID. Second, if you look into the market ranking, we are now ranked 13th by APE. And if you look into the first half, APE drop is about 12% versus the overall industry of 44% drop. We continue to deliver unique and innovative product. We have rolled out new products which has unique features, such as the one we have recently launched in September, whereby there is a unique product feature with a reverse mortgage. We have also tapped into some of the tax-deductible products such as QDAP and VHIS throughout the year. If you look at our solvency ratio at 542%, it remains very strong with well over the 150% requirements. Our embedded value has grown 2% to $18 billion, and we continue to attract talent with 3,100-plus agents and 290-plus brokers. In terms of the outlook for the industry, COVID-19 has certainly raised health care and insurance protection awareness not just in the Hong Kong market, but when the border with China reopens, that we expect to have strong demand from the incoming MCVs. The P.R.C. government continue to support financial reform, and there's a potential opening up of the GBA market that will definitely benefit the Hong Kong insurance market. And we continue to look for opportunities to expand our distribution channels, innovate new products and explore any potential opportunities in insurtech and digitization. I'll then talk about the strategic portfolio. In the environment business, we have seen gradual recovery in June 2020. It's approaching back to the 2019 level despite the impact from COVID in March and April. And if you look into our -- one of our core component within environment, SUEZ NWS, it has contributed more than 65% of our AOP, and the overall water and waste treatment has been largely stable. And if you look into Derun Environment, it has been strong with positive and stable AOP contribution. And in June 2020, Sanfeng Environment raised RMB 2.5 billion growth capital for its -- to further expand their capacity in some of the projects in Chongqing, Guangdong and Shandong. And we also have the ForVEI platform, which continue to expand into the solar power farms in Italy. We have seen strong installed capacity, up about 46 megawatts year-on-year. So the overall outlook for the environment, we continue to expand capacity to capture strong demand for environmental services. Logistics. We have seen strong solid performance from our major component, ATL, the crown jewel in logistic warehouse in Hong Kong as well as in GBA. The average occupancy is at 99.7% with an average increase of 4% in rent. Secondly, we have CUIRC. The throughput has been up 13% year-on-year to 3.9 million TEUs. And in CUIRC, we have seen some operational ramp-up, such as the Qinzhou terminal being in operation. We have the construction of the Guangzhou terminal in progress. We also have seen the Qingdao and Xian terminal doubling its capacity. And we have also seen further increase in -- an expansion in the logistics service, which has increased our -- has improved our performance. Last but not least, Xiamen Container Terminal Group. We have seen the performance slightly affected by COVID. Nevertheless, the throughput is only down 1% year-on-year to 8.5 million TEUs. Outlook for the Logistics segment. ATL will continue to see as the market leader in Hong Kong over the longer term. And in CUIRC, with the expansion of logistics service and the new Guangzhou terminal expected to be in operation in 2021, we see a benefit -- reaping the benefit from the growing demand, and XCTG being in a very steady and consistent performer during COVID. In facility management, we have seen some pressure, operating pressure and also external pressures from COVID overall. And we have been taking a lot of initiatives to revive the business, including cost-saving initiatives, streamlining business in Free Duty and also steady operational expansion in Gleneagles Hong Kong -- Gleneagles Hospital Hong Kong. So if you look in CEC, obviously, it has been affected dearly by COVID, with the events dropping about 57% and the patronage dropping about 46%. If you look into Free Duty, obviously, we are well positioned for the rebound post-COVID. With the recent expectation of the border potentially reopening in October or so, we are well positioned to capture some of the border reopening from the MCVs and also the travelers. GHK, we have seen a stabilizing AOL with continuous operational ramp-up, with outpatient and inpatient admissions up 8% and 2%, respectively. And in July and August, we have seen the performance and also continued to see a recovery in GHK. The overall outlook for the facility management segment. Obviously, we're pending the reopening of the borders between Hong Kong and China, which will benefit our HKCEC, our Free Duty and also potentially in GHK. In transport, we have seen challenging environment -- business environment and also operational challenges, with public activities affected in the first half of 2020 -- fiscal year 2020 as well as the second half hit by COVID. But we have been able to achieve a solid outcome with our disposal in the first bus -- the New World transport business. And if you look into our bus services, Citybus and New World First Bus, on August 21, we have announced the disposal of 100% of New World First Bus and Citybus at a consideration of $3.2 billion. And if you look into our First Ferry business, it continues to deliver the positive AOP. And we have divested 60% of New World First Ferry in May. So our outlook for New World First Ferry, we continue to cooperate closely with Chu Kong Shipping to improve both the services and the quality. And hopefully, with the COVID gradually dying down, the performance will continue to improve. Last segment we talk about, ESG. This year has been a good year for us in terms of ESG. We have achieved strong ESG rating, overall rating under the Hang Seng Corporate Sustainability Index with an AA+. We have also been listed on the Hang Seng Corporate Sustainability and Hang Seng ESG 50 Indices. We have also been in the Hang Seng Corporate Sustainability Benchmark Index since 2013. And if you look into our approach to sustainability, clearly, we are aligned with the NWS' New World Sustainability Vision of 2030, focusing on green, smart, wellness and caring. And if you look into green, we have 17 -- we have partnerships for the goals. We have also a focus in wellness, good health and well-being, sustainability cities and communities as well as creating a worker friendly environment as well as contributing to economic growth. And this year, we have also achieved and extended our first sustainability-linked loan. On June 29, we have announced our first sustainability-linked loan, which can help us to fundraise about HKD 1 billion through a loan with Crédit Agricole. Some of the interest cost saving is tied to certain ESG's performance benchmarks to show our commitment to the society and also sustainability. And as you can see in some of the initiatives, we have taken the electricity use reduction, which has transformed into actual dollar amounts. So this has also proven that sustainability and also ESG can actually translate into cost savings and also benefit financially to the company. We have also identified a few long-term targets in terms of energy intensity reduction, carbon intensity reduction, water reduction and also construction wastes. And we have also promoted and continued to encourage our staff to volunteer and contribute to the society to help others who are in need. We also have committed to climate change policies. We have also set climate-related targets, greenhouse gas, energy intensity reduction. And we are one of the signature of BEC Low Carbon Charter. And as an investor, we have been focusing in being a responsible investor, progressively phasing out investments from coal-fired power to renewable energies, adopting ESG and factoring ESG as part of our investment strategy. And we have also invested in infrastructure and also services business that enhance lives in cities that we operate in. Lastly, we have also -- through some of our existing operations, have used technology to help and promote better ESG initiatives. And this will conclude our presentation.