Far East Consortium International Limited (35) Earnings Call Transcript & Summary

Welcome to the Far East Consultant International Limited 2023 Annual Results Presentation. Before we begin, let me introduce the management representatives. They are Executive Director and Managing Director, Mr. Chris Hoong; Chief Financial Officer and the Company Secretary, Mr. Boswell Cheung. Now, may I invite Mr. Hoong to start the presentation. Mr. Hoong , please.

Thank you. Good morning, ladies and gentlemen. My name is Chris Hoong. I hope you have access to our PowerPoint presentation because I'll be using that for my presentation. And we have also released a very detailed sets of results, 60 pages long. I think we pride ourselves as one of the most transparent in terms of our corporate affairs, financial affairs. And every time when we release our results a lot of analysts say, well, your results announcement is very detailed. So I hope you had the chance to go through it. What I'll do is to basically just go through the presentation, highlight, I guess, a few key developments, some challenges, some opportunities and also how we look at the outlook and what are the key initiatives that we are doing. So those are the things that I hope to cover in my presentation. Just to start, I think if you turn to page, the key themes of FY 2023, I think it sets out really a number of key themes for our results. First of all, I think if you look at the top line number, we have experienced almost top line growth for all 4 core divisions, namely; property development, hotel, car park and gaming. Those have experienced a top line growth. Our adjusted revenue reached about HKD 6.9 billion. And this is adjusting for -- we have an associate company in Australia that is a joint venture company with our partners, and we completed a project. And we -- if you adjust for that number, it's HKD 6.9 billion, if you exclude that number, it's about HKD 6.4 billion in terms of revenue. Our adjusted cash profit and this is adjusting for depreciation and a number of non-cash items, was about HKD 576 million. The property development business in terms of the adjusted revenue, HKD 4.1 billion. The important thing is that if you look at the cumulative presales, this represents the sales that we have contracted but not booked in our P&L yet, amounted to about HKD 18.7 billion. So these are sales that we have locked in, but we have not basically set up. And we did have one project, which was a big one. It was slightly delayed to post year-end, and that's the West Side Place Stage 2, and that was delayed, and we have now started the settlement of that and is progressing well. The HKD 18.7 billion, obviously is a big number, and it give us very good visibility for what's going to come in the coming few years. So far as hotel is concerned, we have a top line growth of 7.4%. I think we're very proud of this achievement. And if you actually compare ourselves with just a lot of our hotel peer groups, we are one of very few companies out there that is still able to basically maintain a good, I guess, profitability even in a very difficult environment. Last year, especially we -- it was, of course, the end of the COVID restrictions period. But -- we did have a period of time where we actually was just reopening and therefore, despite the business being affected slightly, we still experience overall a growth. And we'll go into detail so far as the hotel business is concerned later on. Car park 13.6% growth, and that was largely because of the lifting of the COVID restrictions, the return of traffic back to the city and it's purely 100% organic. Gaming-wise, is very, very strong, and I'll go through a bit more about the initiative there, but later on. The top line growth was 28% year-on-year. And it is still demonstrating very, very strong momentum. And we have also made an announcement that we will be spinning off our European gaming as well as hotel -- continental hotel business. And I'll elaborate a bit more about that later on. So far as the recurring cash flow business is concerned, I look at basically, if you split our business into build and sell and recurring cash flow business, the recurring cash flow business, namely hotel, car park and gaming. The total revenue was up about 11.2% to about HKD 2.6 billion. With the border reopening, I think we can expect that this business, hopefully, on the hotel side as well as the other businesses will gradually recover. I mean, if you think about it, the reopening really only started a few months ago, in Hong Kong, it was really -- and China is maybe December, January, right? So very, very recent. And our year-end is 31st of March. So we still, during this financial period still has quite a big -- a long period of time where we were still subject to the COVID restrictions. The other thing about the recurring cash flow business, one of the achievements is that we opened the Dao by Dorsett in London. It is a new service apartment brand. And Dorsett is doing very well. We also opened the Ritz-Carlton Melbourne, and this was in March. So there was not really any contribution from this hotel because it's like open, I think it was on the late part of March, right, even though it was in the same financial year, but it was only for a few days, right, in the last financial year. And then we opened the Dorsett Melbourne in April, which was a few months ago. So we added about 650 rooms roughly. Car park business, I think we saw organic growth. I mentioned about it. Gaming business, I think the other sort of highlight is that we also obtained an online gaming license in November 2022. Our thoughts about the gaming business is that we want to segregate it into a separately score. Hence, the filing of PN15 which we now have the green light from the Stock Exchange. So we are going full steam, be preparing ourselves for the separate IPO of that business. I think the other sort of theme for 2023 is the recycling of a non-core assets into projects with higher return, especially given the high interest rate environment. We are very actively reviewing our portfolio to see what assets we should be selling and then using the capital for debt reduction or basically reinvesting in higher return project. We've done a few deals last year. I won't go through every single one, but includes basically the Vauxhall Square project, the Union Street, Pyrmont project. We also sold some mature car parks in New Zealand, and we then use some of the capital to buy a piece of land in Sai Ying Pun under the URA redevelopment scheme. The other business, which is doing very well is, of course, the mortgage lending business is actually a platform that facilitates our customers to borrow money secured on first mortgages on residential property. The platform is actually very mature now. I mean we started this about 6, 7 years ago. I'm very proud about what the team has achieved, and they've now completed the 7 RMBS offering. They were last being 1 that was done in April, and we are now preparing another one. And it is a very high-quality book and is doing well, and the growth last year was about 40%. We now have an AUM there of about AUD 5.3 billion over AUD 20-plus billion of AUM in that business. The other sort of core initiative for 2023 is the implementation of the initiative to lower the gearing and also the interest expense. You'll see actually from the actual numbers that it's not just us, right? It's everyone, is especially more proactive corporate are now actually focusing on initiative to try to lower that level, reduce the gearing. Likewise, we are doing the same. To us, a number of very important initiatives under that one is as I said, we do have a very big amount of contracted presales, HKD 18.7 billion. So the priority now is to actually get all that to turn all that to cash. And a lot of our projects are near completion stage. So you'll see that basically the short-term liability will naturally go up, because we will then use the presales to then pay off, right, the construction loan, which is now happening. So that's one important thing to try to lower the gearing number. The other item to highlight. I think for those of you who are involved in the West Side Place project, it is a very, very big mixed-use project with 3,000-plus apartment to hotels, retail. We are actually in the process of now -- we have now finished the project officially, I think, around April with the hotels now open in West Side Place. The residential projects are now in the process of completion, and we are seeing basically almost every day, right? There are completions happening. So that will hopefully help reduce the debt level. The active sell-down of inventory, we have about HKD 5.5 billion of inventory. We recently -- for Malaysia, there was actually some inventory stock and we decided to basically just sell that as well. This is the Dorsett Bukit Bintang. So we are completely out of that and realizing some cash there. The other initiative, I think I mentioned just now is the non-core. I mean we have basically the Dorsett branded hotels, and there are some also non-Dorsett branded hotels like the Sheraton, the Ritz-Carlton. So we are in the process of basically actively selling down the non-core assets. There are also some minority interest as well. To give you an example, last week, we -- this week, we just signed a contract to sell the Sheraton Gold Coast. So that is an example. And we've mandated agents to sell the 2 Ritz-Carlton hotels in Australia. So these are a number of examples of initiatives that we are doing in terms of monetization of some non-core assets. Longer term for unlocking value, I think, I mentioned just now about the PN15 spinoff of Trans World. We completed a pre-IPO placement for that business. We placed 10% of TWC raising USD 20 million, but that equates to a valuation of about USD 200 million for that business -- USD 200 million for that business. We bought the business for USD 42 million a few years ago. So it represents a pretty good return. And for us, I think a number of important considerations there is, one is, we want to basically have a clear line of business for gaming, allow the business to have the opportunity to grow on its own. And by doing a separate listing, it kind of facilitate that. The BC business is growing very fast. Of course, it's also very capital hungry. We are in the process of doing a strategic review, just to see how we can position that business to capture the significant opportunity in the non-bank lending space. And we are in discussions with a number of new investors as well in terms of providing new facility to support the growth of that business. So that's kind of the key themes for 2023. Now going -- I'm not going to spend too much time going through the numbers because I think it's all pretty clear in the announcement, but I'll give you some highlights. The top line, as I mentioned, up about 7.6%. However, the bottom line has been impacted and it's been impacted for a number of reasons; one is, we did have a number of lower margins projects that we booked in the second half of the financial year, namely the affordable housing project in London, the Singapore project is actually because we have sold off all the lower floor units, that's of lower margin, the higher floors will have higher margins. So that kind of have impacted the margin as well. But -- so that kind of dragged down the GP margin line. However, if you look at some one-off expenses, we did also have about HKD 187 million. So far as I'm concerned, it's more one-off is, for example, the remittance tax that we incurred in -- we maintain the cash flow from China as well as -- because it's, again it's about capital reallocation. So we incurred quite a lot of tax there. And then when we open new hotels, and we have quite a few big hotels that we opened, we incurred quite heavy preopening expenses as well. And those actually dragged down the profitability of the business. And the other important factor is, of course, interest rate, right? Interest rate has gone up, and it has also has a negative effect, right, on the profitability. Having said that, I mean, in terms of dividend, the Board debated yesterday and we decided that we will -- given the macro uncertainty in the macro environment, we declared a dividend of HKD 0.10 final and HKD 0.04 we paid already as interim, so HKD 0.14 in total, compared to HKD 0.20 last year, it was a reduction. However, having said that, last year, we did a bonus issue of shares. So if you adjust for that, right, the reduction in dividend per share -- cash dividend per share, it's about 23%. So given the situation, I think, it's a fair arrangement for both -- for our equity common shareholders as well. The other sort of highlight, I mentioned just now in the presales number, HKD 18.7 billion. So it's very healthy. Of course, West Side Place was delayed. And if you add -- if you compare the actual sales last year, including the HKD 3 billion that we realized, the sales last year as a whole for property has been actually pretty robust. So property development, you can see we actually recognized HKD 3.5 billion in revenue, and yet we did have an increase in cumulative presales of about HKD 2 billion. So we did over HKD 5 billion of sales last year in property development. So that's actually a very, very strong number. So far as the NAV is concerned. I mean it went down 5.5%, and this is adjusted for our hotel revaluation surplus, and so that you're aware, we don't realize the profit that we make on hotel development because we own it for our own operation, right? We hold it for our own operations. So we don't mark-to-market, the hotel value. For example, when we completed the Ritz-Carlton hotel and the Dorsett hotel, on our book is book cost, not the revalue of the amount, but we do a revaluation or valuation by independent third party for banking purposes, the value of our hotels every year. And there is a surplus of about HKD 19 billion in that. And you don't see that unless we sell the hotels, right? So it's just something to think about that we do have a lot of revaluation gain that we have on our balance sheet associated to hotel development, which are not mark-to-market. So that's something to note. Turning on to the next page about the property pipeline. I think in the company years, the 2023-'24, you'll see that actually West Side Place Stage 2 will be a major contributor and also Hyll on Holland in Singapore will be a major contributor. In addition to that, we are also going to be booking a number of presales in Hong Kong, Mount Arcadia, Manor Parc, Royal Riverside and California Garden. These are China projects, we have some inventory that we are selling. So this will be -- I think, I can be reasonably confident that in terms of the revenue contribution from this project is actually going to be quite meaningful. And in particular, we are already doing the settlement now for West Side Place. And then the following year, Kai Tak, which we have already presold to China Light & Power, there will be over HKD 2-plus billion and that will be coming back onto our balance sheet. And we have locked in that contract already. Singapore, there's a small project, but the key -- the others of key projects are the Dorsett Place Waterfront project in KL, the the Manchester project, the London Project Aspen and the Queen's Wharf, Town Hall project. These are going to be in the following year. So the pipeline in the coming few years is actually quite healthy. If you turn to page -- the following page about the margin. I think, I mentioned these margins were -- if you look at the gross profit margin before depreciation, you'll see that actually except for the property development business or the other divisions, maintain a pretty healthy margin. Hotel was 52%, car park was 19%, primarily because it's all third-party management, gaming 60%. Now this is about 80%. The property development business was 19% versus 32%, primarily because of the factors I mentioned, we have a number of low-margin projects that we booked. Affordable housing in London is one, and it's something which we can't avoid, because it's part of the planning that we obtained from the government. We do have to deliver a certain quantum of affordable housing, and that essentially, you don't make any money at all, but we presell it. So it's funded by the buyer anyway. But when you put it on your P&L, it drags down the overall margin. That's the reason, I think, for the impact that you'll see in the P&L. Just to give you some flavor as to how I look at the property market as a whole. With the reopening of the borders, especially Asia versus Europe and Australia and all that, we're actually seeing actually quite an increased flow of traffic, still the numbers in Australia and U.K. have gone up substantially. In the CBD in Melbourne, we are actually seeing very low vacancy rate. The pick-up rate for new apartments has been strong, and we have seen rental actually shooting up quite dramatically, in the magnitude of like 30%. And vacancy rate, I think, is like 1% or something. What it's saying is that there appears to be a demand supply in balance at the moment in certain -- especially in the locations that we are operating. We are seeing actually a slowdown in the supply for a number of reasons because maybe it's more difficult to update now development financing. A lot of smaller developers are not building. Contractor market is very tight because it was partly because of COVID. And that has resulted in a slower supply side. And yet you'll be seeing actually demand picked up in a number of regions. And that has resulted in some demand supply and balance in some of the locations that we, for example, Melbourne, Manchester is also another example that we are seeing. So we -- it's actually playing quite well for our positioning as a whole. The next page, I want to talk about the impact on ForEx. As you know, we report in Hong Kong dollar. And yet we do -- because our business is actually pretty diversified. We are operating in multi-jurisdictions we are in Australia, we are in U.K., we are in Malaysia, we are in Singapore, China and Continental Europe. So when you translate your numbers back into Hong Kong dollar, and you will naturally see some big fluctuation, especially our business where we are actually quite geographically diversified. And last year happened to be a negative year because almost all currencies versus U.S. dollar decline, Australian dollar decline, renminbi decline, euro decline, pound decline, and that has impacted our balance sheet equity. But it's short term, right? I mean we have seen basically the other way for some years, right, it's up like HKD 2 billion in equity and then some years, you're down HKD 2 billion. But what I'd like to say is that, look, the way we operate, we don't hedge the equity. It's very expensive to hedge equity. We hedged by taking up local currency that to match against the presales. What you kind of -- what is basically your equity fluctuation, right? But it's not fundamental. I think that you'll find that in some years, it will be very much in our favor. What it meant last year was that if exchange rate had maintained constant our equity would have been HKD 1.7 billion higher. So that's the financial impact analysis, FYI, right? So -- next page is about unlocking value. And I think with what we are doing now, the key initiatives that I mentioned, the spinoff of the gaming as well as Continental European hotel business, the selling of some non-core assets. I mean, if you remember, we actually did have an initiative to do a hotel REIT as well. A number of years ago, we put that on hold, primarily because we had this social incident in Hong Kong and then followed by COVID, it's been like 4 years of like 30 tough conditions. So we put that on hold. It's still not the right timing to be considering that at all, because interest rate is very high. But there will be a moment when the market conditions will be right for that. So we -- it still is on our agenda, I just want to say. And also, I think the strategic review on the BC hopefully will use something there as well. All these, right, are opportunities for us to unlock value for our shareholders. Moving on to the next page. I think, you see that our gearing ratio has gone up last year, primarily because the number of projects, right, are getting to a more mature stage of development like West Side Place, right? You're getting to the end, so your construction loan is maxed out. And then your presales is maxed out, and then you don't have the revenue in yet or your. So you have the short-term spike in the gearing level. And we did a calculation and say, look, what if we realize and then we did the figure, I think, for last Friday and say, look, we actually already settled about HKD 2 billion of West Side Place like as of Friday last week. That would bring the gearing level. This is measured on the basis of net debt to total assets will bring it down from 35.4% to 32.7%, and that will continue to come down as we settle. So just want to like for those of you who are looking at balance sheet, right, to be aware of the dynamics of our business. The initiative to reduce that -- I think we've seen in the market a number of big corporates announcing quite major corporate transactions. Our approach is that we are really looking to monetize some of the non-core, some of what we feel as more mature assets. And our target is to try to reduce the debt level by about HKD 6 billion to HKD 7 billion. And the key initiatives are: number one, monetizing existing completed inventory. As I mentioned, we have HKD 18 billion of presales that we've locked in. We -- on Stage 1 alone, right, we have now completed over HKD 2 billion of settlements. So that we paid down HKD 2 billion already. We are selling down some of the inventory, like Dorsett Bukit Bintang is an example. We signed a contract a few weeks ago. We sold HKD 200 million worth of inventory. We are launching a number of major campaigns to basically actively monetize those inventory, right? So that will be, I think, one of the key focus for us in the coming year. Actively selling down non-core assets, I mentioned about the Sheraton Grand Mirage deal. It's already signed. It was signed last week. Our partner made an announcement. We bought the asset for AUD 140 million. About 6 years ago, we sold it for AUD 192 million. So a lot of people say, "Oh, high interest, you can't get this, and I said, no, you can and you can sell it at a very good valuation as well. It depends on the process you run. There are challenges, but we still able to actually do a successful deal. And we are earmarking to -- of course, there are some non-core, which I mentioned some mature car parks. We are in the process of actually doing another deal at the moment. We did a New Zealand sale completed, that was post year-end. So these are some of the examples that we are actively actually going down that path. The contracted presale, in particular, I think, there are 2 main projects: one is the Kai Tak office project. If you go pass the Kai Tak stadium, you'll find that there are actually 2 new buildings next to the main stadium and that's ours. One is the hotel. We're building a landmark Dorsett there, flagship Dorsett there. And then there is an office block, right? And office is not easy, and we are very, very happy that we actually locked in the sale with CLP, a few years ago. And this is earmarked for completion in -- I think, it's FY 2025, but it is big, to summarize, it's over HKD 2 billion. So that's one of the priority for us to get it over the line. And then, it's the spinoff of the gaming business, which I mentioned. So that should hopefully bring new fresh equity onto our balance sheet, and that's one of the initiatives I mentioned. Just to give you some analysis on the liquidity position. The short-term debt looks high. However, we have repaid down the 4.5% loans already. We are -- I mean, there's one deal '24, which we will be paying down a number of loans are being rolled over. There's also HKD 2.5 billion of short-term liability, which are actually not really deal but classified short term because of the repayable demand clause that we have in our loan agreement. We have a liquidity position of HKD 6.5 billion on our balance sheet and undrawn facility of about HKD 7.3 billion. So in total available resources about HKD 14 billion and presales of HKD 18.7 billion, right? So if you add the 2 together, it's over HKD 20 billion. So that's how I look at the numbers. In addition, we still have 5 hotels which are unencumbered and inventory of about HKD 5.5 billion, which is unencumbered. And in terms of our CapEx, right, I mean, we have purposely slowed down our CapEx, and you can see that in fact, we've reduced it substantially to just below to just over HKD 1.7 billion. So it's at comfortable level. And those are primarily hotels that we are completing. If you turn to the page on presales, we give very good transparency about which projects, what is the GDV and what is the presales that we have achieved as at 31st of March. In summary, we have about sales resources about HKD 61 billion. So we -- pipeline, I think, is sufficient for 8 years of development. So we don't need to buy land for the next 8 years, and we can -- we have -- we are still okay, right? So that is something worth noting. And then we have now locked in HKD 18.7 billion of presales. So that gives you an idea as to the longer-term visibility of our development business. The next few pages are really going into the project by project, what we have completed. I'm not going to go into very detail on every one of them. But just to give you some examples, the Star Residences in Gold Coast. We opened it. We completed it last year. We opened the hotels, 313 rooms. It's called the Dorsett Gold Coast. If you happen to be in Gold Coast, please stay with us and make sure you call Boswell and or Jasmine and they give you the rate of special upgrade or rate for you, and it's a fantastic hotel. The apartments we have now also, and so we got back some good cash. The MeadowSide development in Manchester, a number of my friends who bought in, have calling me and say, fantastic. They're getting a very good yield, very easy to run out, they all are making money. And that was completed in the last financial year. Hornsey Town Hall, Block A was completed. We are completing, well, we had just started the handing of Block B. The Town Hall itself is a -- it's primarily 67 service apartment rooms and then that you also have a facility that you can run out. So that is earmarked for completion in this financial year. New Cross Central, that's the Manchester project, again completed last year, but the settlement is mostly this year. Upcoming project for completion, Queen's Wharf Residence Tower 4. I think this is largely sold out now, presold now. The Queen's Wharf Residence Tower 5 as well. The construction is on those 2 towers are ongoing. Kai Tak Residential. This was a project that we're doing 50-50 with the New World Development. So that's progressing. I think we are getting the presale concern now. So that's kind of, I'll give you a quick sort of summary of some of the sort of live project. I don't think we have Aspen here, but Aspen is also a very big project in London that we are undertaking. The -- if you turn on -- turn to the hotel operations. You see that actually Hong Kong number was a little affected. Last year, we had a fantastic year with the quarantine stay by the government. And then they announced, I think, in December that quarantine is no longer required. All of a sudden, we've got to change that back to a normal mode. So there was like a few, after 6 months in the second half, right, I think at least 3 or 4 months we're adjusting back to normal operations like this hotel, right? I mean this was a quarantine hotel before. And now it's -- you can see there's a lot of hotel guests right staying here. We are also reopening the restaurants to outside, and we have got this very famous Michelin star restaurants. So you should come and try, open. But it did affect in the second half, right, in terms of the hotel occupancy level. But I'm glad to say that things are getting back very much back to the normal. Overall, for hotel, you see that the revenue was up about 7.4%. RevPAR number in Europe is almost double. I think, China was the weak point last year, but actually, more recently, we've seen actually China number recovering very, very strongly. I think you'll see actually in the first half of this year, China number is going to be up. So that's quite kind of a quick overview of the hotel operations. A number of -- I think, we have some photos of our new hotels here. Dao by Dorsett, it's a new brand, a service apartment brand that we need spearheaded and it's a very successful product. We also have rebranded our project in Singapore, a joint venture project it was called Oakwood before, now it's called the Dao by Dorsett Singapore, which is also doing very well. The Ritz-Carlton Melbourne, I think, for those of you may be playing a trip to Melbourne, please try our Ritz-Carlton hotel. Fantastic, it's the best hotel in Australia. And you can go up to the 80th floor, and you can see the entire Melbourne CBD. Fantastic hotel. Turning on to the next page. In terms of pipeline, we are adding a few more hotels, one in Hong Kong, which is a Kai Tak hotel. The Queen's Wharf hotels will be ready hopefully in the next few years. U.K., we are building the Hornsey Dao and also at Canary Wharf, we're building a hotel. So these are new additions. But this year, I think the growth from new hotels will be mainly from the new hotels that we opened last financial year, like the Ritz-Carlton, the Dorsett at Melbourne and also the Dao Shepherds Bush. The new addition, Dorsett Melbourne, for those of you who want to experience Dorsett in Melbourne, try the Dorsett Melbourne, it's a fantastic hotel. And we have our Chief Designer, Wendy, here. So if you have any complaints, speak to her, she's here. The next one is the Dao Hornsey, which I mentioned. Kai Tak. Kai Tak is, it will be a landmark hotel. And this is right next to the stadium, the sports stadium, and this will be the largest stadium in Hong Kong. I think in terms of capacity, 3x to size of Hung Hom [ Tai O Kong ]. So all in future Rugby Seven, all the concerts, all the big events, right, will be held in this venue, the sports park in Kai Tak. The government has spent billions of dollars into the redevelopment of [ Oak ] Kai Tak side and CLP has chosen the site to be the headquarter in Hong Kong. So -- and we were happy to have our flagship to be open there next year as well. So that's the other sort of major project that we are undertaking at the moment. Sorry, I'm mindful of time. I'm overrunning a bit, but I'll be very quick on the next few slides. Car park operations. We recently increased our stake from 77.8% to 90.4%. There were some management changes. We discovered some issues, and we basically had a dispute. And now that is resolved, we are moving forward. We have increased our stake there. The minority shareholders surrender their shares to us. So we are embarking on a new growth chapter. I think it's a good move. And within that portfolio, we have more focus on third-party management now and that. Yesterday, I spoke to our guys and even in Hungary, we are now winning new contracts. I think we've got 2 more shopping mall contracts that we won, a few thousand base. So I think the team is doing reasonably well. Our gaming operations, I think, the big game changer will be the opening of Queen's Wharf is progressing. I think there was some delay in the construction. However, we are now looking to open the first phase, which is the casino floors and 2 hotels in the second quarter of 2024. So this will be next year. Just a reminder, it's a 99-year license with 25 years of exclusivity. We have 2,500 slot machine and unlimited number of tables allowed on that side. The next slide is transfer. I think you see that the after gaming tax revenue was up 28% to HKD 300 million, and this excludes the hotel that transfer own. So it's demonstrating actually a pretty good growth momentum. And we do see actually good opportunities in the region that they operate. It's just that from our perspective, we would prefer that those opportunities are captured by a separately scope, enhanced initiative to spin that off. And hopefully, the gaming license -- the Malta online gaming license that they have is also can add to the growth momentum of the business. We are not launching that until I think -- we are in the process of basically doing the system audit and selection. And hopefully, that will be done later part of this year, and then we can launch it. BC Invest. I think, I mentioned just now, so I won't elaborate too much. You can see the historical growth chart. The new development days that we acquired, the remaining stake in mortgage park, which is a retail mortgage broker in Australia. So we now have 2 avenue of distribution so far as the mortgage product is concerned. One is the retail channel. This is direct to see. And then we also have the wholesale channels as well, so which is a dual engine approach in terms of tackling that business. I think at some point, this is also a good spin-off target, but not the right time yet given -- I think we are still seeing that the business has just crossed over the inflection point in terms of profitability. And the profitability growth in that business, once you get to a certain size, right, you don't need to build any more the infrastructure overhead. And every single dollar of loan that you originate the profit, which is the NIM, right? I mean, for those bankers here, you understand NIM, net interest margin, right, it goes straight to the bottom line. So your overhead is not growing and the AUM growth will drive the NIM growth, which will go straight to the bottom line. So that's what we are experiencing. I think, we have just crossed over the inflection point now. And hopefully, in the next few years, we -- this will be a good contributor to us. Give me 5 minutes just to summarize the key outlook, I think in terms of balance sheet management, we are unlocking value. We are reducing that. We are targeting HKD 6 billion to HKD 7 billion of debt reduction. We are very focused on selling down the inventory. We are selling down some non-core assets. We are going to be unlocking those values that has been on our balance sheet for a number of years. We have HKD 19 billion of revaluation surplus on our balance sheet. So that gives us actually very good ammunition. We have, on the property development side a significant HKD 18.7 billion of existing stock that we are actively selling down, the presales that we have locked in and will provide very good visibility. The hotel sector is recovering. I think the worst is over now for hotel. Given the reopening. So it's gradually coming back to normal. I don't think we are optimal yet. I think there's still scope for growth. But the signs are good across different regions, China, Hong Kong, Europe, Asia, so demonstrating stabilization, which is good. The car park portfolio will grow organically, especially on the management business side. The new property openings, Queen's Wharf, and also some of the new hotels that we open will generate additional cash flow for the business. And BC, as I mentioned just now, is demonstrating actually good growth opportunity. And last but not least is the ESG initiative. We have a very, very strong team headed by Rene on the ESG front. We are very focused on the social aspect, very focused on corporate governance as well as environmental for hotel. To give you as an example, I was just listening to Rene's presentation yesterday, like in the hotel. If you choose not to use the toothbrush, the amenities, and we give you some point so that we try to basically incentivize customers to use last of the disposable item, right? This is one of the example. So on the social aspect, the positive social impact initiative that has been put in place, like I keep seeing a lot of social media reporting about our initiative and all that very, very positive. For those who all know Rene, she's very, very passionate about it. She hits up that initiative. So well done to her. And on the corporate governance side, you can tell from our result announcement, how detailed we are. I've seen a lot of people just like a few pages of summary of results, but we actually went to the extent of providing you the analysis of every business, breaking it down so that you can have a good understanding of our financials. And we are very proud that with the efforts that we put together, we have won a lot of corporate awards last year. I think we are named by FinanceAsia as one of the Best Company in Hong Kong, Best IR Company, Best Annual Report, Best Investor Meeting. And these are all attributable to the team efforts, and I'm very proud of the team. And with that, I would like to conclude my presentation. Thank you very much.

[Operator Instructions].

One of the question is -- [Foreign Language] Please introduce about your direct and future development direction and strategy.

I guess we will continue to focus on our core businesses, which are property development, hotel development, ownership operations, car park operations. I think the opportunities for us at the moment is that we are going to be actively unlocking some value on our balance sheet, reduce the debt level. Recycling the capital in some extent to higher return project. I mean, because of higher interest rate, right, we've got to be very disciplined about making sure the investment that we may generate adequate return. In the past, maybe when interest rate is at 1%, 2%, you'll be happy with 15% return on our equity. Now you've got to aim for above 20% return on equity to make it worthwhile, right? So those will be the very -- having a more disciplined approach in terms of capital allocation is going to be important. The growth opportunity, as I mentioned, is still going to be in cities where we see population growth. London, Manchester, Singapore, Melbourne and Brisbane. I mean, these are locations where we are seeing very good population growth.

Do we need to -- [Foreign Language] Another question is any specific plan to reduce debt or gearing rates or what is the expected gearing rates?

Yes. I think I mentioned in my presentation, I think we are targeting a HKD 6 billion to HKD 7 billion debt reduction -- over -- I think the next, I would say, 12 to 24 months, right? I can't give you a specific date. I mean, it hinges on how quickly we can monetize. But one thing for sure is that the settlement of some big projects are happening. To give you an example, the West Side Place project. As of Friday, we have set up already HKD 2 billion, right? So that number is coming down quite rapidly. And we have also, for example, the CLP project, another HKD 2-plus billion there that is going to come back onto our balance sheet. And sale of inventory, right, I mean we have over HKD 5 billion of inventory, we are actively selling that down. We just signed a contract, I mentioned just now on the remaining block -- remaining inventory in Dorsett Bukit Bintang, that's like HKD 200 million. Selling some of the non-core assets, the Sheraton Gold Coast is an example. So that will help actually bring in cash back, reduce gearing. So those are a number of the initiatives that we are doing, but the target is HKD 6 billion to HKD 7 billion debt reduction.

Given the sales of the property, it's the major business. Any expectation or improvement in coming property development, profit margin?

Yes. I think last year, I mentioned we had 1 big affordable housing project that we completed. That kind of dragged down the margin. I think, Australia, West Side Place margin is, I think it's reasonably good. I don't want to give you a specific number. But yes, I mean, I think, I hope we can see a recovery in the margin in the property development side, yes.

There's another question from the online. HKD 23 million profit on HKD 1 billion assets, which is talking about the mortgage business. With higher interest rate coming up and also lower stock valuation expecting, what is the impact, what is the business hurdle we are seeing?

Okay. The BC business is actually a platform business. It's the -- AUM is basically the assets that BC is managing. I mean, are there stress in the mortgage market? I think, with rise in interest, there will always be stress. But, are there significant reason? The LTV for that portfolio is actually very low. It's about 60%. And we always do stress tests on borrowers anyway, and it's floating rate, right? So it's not like you fix the rate and then you are subject to your higher floating rate cost and then you're stuck with fixed rate -- and this is a floating rate, right? So we look -- just like any banks, right, we look at the NIM, right? And I think there's scope for NIM expansion in that business, especially I think the view from a lot of economists is that, if not pick almost at the peak in terms of interest rate cycle. And you'll find that actually is still a very liquid market in the capital market in RMBS, like nobody expected that we will be able to complete so many RMBS deals despite the market conditions, right? One of the reasons is attributable to the high quality of the asset portfolio alone. We did a rating for our last bonus. I think over 90% is AAA S&P rated. So very high-quality paper. And the buyers or the investors are mainly insurance company, pension funds, or in wealth fund. And even -- and I don't think I can name the bank, but even a very big international banks came in and bought the paper as well. So this is a very, very high quality asset under BC. And the risk is not really taken on by BC or FEC because it's non-recourse, right? Those liabilities actually taken by the investor. That's why the rating and all that is important and it's on a non-recourse basis, and we are managing the assets. And our income is basically the net interest margin that we get. And the market remains very liquid, as I mentioned. And this is an asset class that all the banks are holding, right? I mean this is the bread and butter of HSBC, Hang Seng, ANZ, these are the bread and butter, right? So it's just that we are there because we -- in Australia, for example, 50% of the mortgage -- residential mortgage business are done by non-banks, the banks only account for 50%, the other 50% is non-banks. So we have some room there for ourselves, right? So we started this business to facilitate our customers. It just grow way beyond its original mandate. And FEC customers now account for less than 1% of BC's business. So it's kind of like, we didn't expect that they will be so big in terms of the market. But yes, I mean, we were in the -- in a good spot. I mean, the NIM has compressed because of higher interest rate, but it will come back up at the moment. We are very focused on basically making sure the infrastructure, the setup, the credit team, the loan processing team, the loan administration team, everything is set up properly so that we can handle a bigger volume. And from now on, it's basically because we've crossed the inflection point, right? So it's hopefully just going to be better and better from now on, so.

Thanks management for the very comprehensive introduction and presentation. [indiscernible] Dorian from ANZ Bank. Two questions. First of all, regarding the GP margin, we just mentioned about there will be a recovery in the coming 2 to 3 years. Well, I just want to ask, long run wise, given the cost inflation as well as shortage of labor, overseas. How do you see this margin, especially with the property development in the coming years, 3 to 5 years? Is it still under pressure or not, especially with the property development side. Second question will be, any new land purchase planned in the coming 3 years to 5 years and in what kind of geographic you're looking at?

Yes. I think there will be some pressure on the GP margin, but I think with real estate development. I don't think the impact is going to be very significant. I think -- the key is, it's more, I think, going to be on construction cost inflation. And we are trying to pass on the price increase to our customers as well. I mean, like any business, right, you will try to protect your profitability. Of course, for the all the projects that you have already presold, we typically will lock in the price very early on and pass on the cost inflation risk to the contractor themselves, right? So for new projects, we will be also taking that approach. Interest rate, we can't control. And that's why there's always going to be the argument for investing in property because the replacement cost is always going to be more and more expensive, right? And for those who bought your property 20 years ago compared to the property price now, I mean, yes, there are cycles up and down. But the longer-term trend is still up, right? So -- to answer your question, yes, I think there will be some temporary pressure on the margin. But long term, we are all looking to pass on the cost increase to our customers. Land purchase plan. At the moment, honestly, as I mentioned, our pipeline, I think we have enough pipeline for 8 years. We are not in a hurry to replenish and we are very cautious in assessing unless we -- it depends on the sales momentum. If we digest a lot, then we will replenish. Otherwise, we would rather focus on digesting rather than buying new land banks at the moment, yes.

Any refinancing plan for the next year, 2024 October? And any bond tender plan?

Yeah. We are always evaluating opportunities. I think, it will all depend on the market conditions as well. I think if market conditions are right, then we will go ahead. At the moment, I think, the market is looking for stabilization. I think stabilization is gradually happening. So watching the market closely and when there is a market window, then we'll do it, yes.

This is Bill Song from KBW Capital. What is your average financing cost in last year? And also what will be the FX financing cost for the coming year?

For the financial year 2023, the average funding financing cost is about [ GBP 3 ].

No, I think the spread, right, is about 100-plus basis points, but the -- of course, the benchmark rate is the benchmark rate, right? I mean, there is definitely pressure on that. But we think that in terms of spread, we still actually, one of the more better credit out there for banks. It's depending on the currency, Hong Kong is based on HIBOR; and then Australia is based on BBSW; U.K., I think Sonia; Singapore is SIBOR. So it depends on the different regions. And then China is the PBOC rate. So the different places have different benchmark.

Do you have a plan for the Kai Tak residential project, right? Do you have a plan to look at the market condition? Do you want to plan to do some revaluation of the project?

I think most likely, we will launch that next year. I think we are trying to get ourselves -- yes. Our product is a little different from the other product. Our product is going to be in a lump sum, the lowest in the area. Because of the size of our apartments are like 350 square feet size. So what we are trying to do is to come up with a product which is where buyers can borrow 90%, right, from the banks. So you can calculate roughly [indiscernible] preempt my sales team on the launch, but I think you'll find that our product will be relatively competitive from a lump sum perspective compared to the other developers.

In terms of the destocking, sell-down inventory, how aggressive you're going to low to cut down on inventory? Are you going to lower the price?

I think, it's not about lowering the prices. I think, there will be more marketing spend to actually -- I mean, a lot of our inventory is actually in Australia and in U.K. Singapore, we -- the last time I look at the Hyll on Holland project, we only have 11 units left. It's almost digested. Now that's why our presales number is actually pretty good. Hong Kong, there's some -- inventory in Hong Kong is tough at the moment, it's a bit slow. But the fundamental of Hong Kong, a lot of people may not be aware, there's still 1 million-plus household in Hong Kong, which do not own their properties. The key at the moment is affordability, right, with the rise in interest rate in Hong Kong. People are like, do I run first and then buy later. Actually, we've seen a trend of basically the investor market coming into basically the -- what we call the BTR segment, the built-to-rent segment, not only in overseas, but U.K., very active BTR market now and also Australia, a very active BTR market. I think, that you probably will find some BTR project here in Hong Kong as well. So right now, if you ask me, I think it's not -- it's a very cautious approach to Hong Kong by a lot of developers. And -- but I don't see people like cutting prices because they know that -- and we've seen a lot of cycles in Hong Kong, right. Hong Kong is the fundamental, is that there is a shortage, there is still some shortage here. It's just affordability, how do you make it more affordable, right, yes.

[Operator Instructions]

Can you elaborate a bit more on BC Invest. I think, is those mortgage-backed security that you do you have a recourse?

No, it's non-recourse, it's a platform. So BC was set up as a non-bank platform -- lending platform. So what it does is that you arranged the facility from financial institutions. And you -- we then originate the loan, manage the loan, do the credit assessment. And then you build a portfolio and then you securitize it by doing a RMBS. And then the money that goes back to the bank, we pay down the so-called bridge or warehouse financing and then you free up the facility and then you originate new loans. So you need to grow, you need a lot of facilities. And you need to keep issuing RMBS. And our business is, we take the net interest margin, right? We don't take the risk, it's like an asset manager, right? It's like fidelity, you manage, you have an AUM, you take a fee from the AUM. In our case, the asset is mortgage loan, residential mortgage loan is the asset. So we originate the asset, at hopefully a higher rate than your cost, right? Then you take the net interest margin as your income. And -- but you need to build an infrastructure to facilitate that. So when we did that, we -- initially, we thought we will facilitate our customers, but it's the business is growing so well that we expanded the team, and we are now actively -- actually, we are one of the largest platform in Australia now.

This comes to the end of our investor presentation. Thanks again for joining. Thank you.

Thank you very much. Thank you.