New World Development Company Limited (17) Earnings Call Transcript & Summary

Friends from the investment sector, good afternoon. Welcome to New World Development Company Limited's FY 2023 Annual Results Presentation Analyst Briefing. I am the Head of Investor Relations, Patrick Cheung, I'm the MC for this session. First of all, let me introduce the management in attendance. They are: New World Development's Executive Vice Chairman and CEO, Dr. Adrian Cheng; New World Development's, CFO, Mr. Lau Fu Keung, Edward. [Operator Instructions] Now let's invite Adrian to start.

Ladies and gentlemen, first of all, I would like to clarify that right now, the market is in a very sensitive condition, and there are many untrue rumors outside bringing about a lot of shocks. Some time ago, regarding the financial position of New World, there are many untrue remarks being spread in the market. And I suspect that there are people who took the opportunity to manipulate in the market. Because we have a 3-month blackout period, during which we cannot take any corresponding actions in the market. So that's why these people made untrue remarks against us. But we immediately made clarification. We have also reported to the police so that now the case is being handled by law enforcement agency. I'd like to take this opportunity to give explanation at one go. Besides, I would like to tell you that in the future, we are going to take some strategies. My first point is, New World's financial position is very sound. Our cash reserve is strong. We have cash on hand together with available capital resources amounting to HKD 94 billion. In the first half, our group had already obtained HKD 30 billion low interest bank loans. Interest rate is HIBOR plus 1.1%. Our overall interest rate -- loan interest rate is 4%. So you can see that our financing capability is very strong. There are many rumors upside saying that the banks have cut our credit line and so on. I can tell you that all along, we are doing business with 60 banks in the long run for almost 50 years already. Our relationship with those 60 banks is very good. At this moment, and also in the coming 50 years, there is not 1 bank telling us that they will cut our credit line. So I really don't understand how this rumor came out. In the future, there won't be this possibility. In the future, we will make very strong commitment to deleverage. First, we will expedite our deleveraging pace. We are prepared to buy back bonds, including perpetuals. Now, given this high interest environment, we can buy at a discount, this can enhance our profitability, lower our gearing and give support to the secondary market. Besides, in relation to CapEx and OpEx optimization, we have been doing a good job to reduce cost. Number three, for FY 2023, it is a difficult year. Interest rate is high. There are many external challenges. Our gearing is relatively high. However, the good news is for our group, large-scale investment projects have entered the final stage. For example, 11 SKIES, Shenzhen K11. So in FY 2024, our CapEx will decrease significantly. Our goal is that -- well, because in the past few years, we invested in a lot of recurring income. So now we are at the end of tunnel. We are gradually entering the harvesting phase to harvest on recurring income. Our goal is by 2026, our group's recurring income will account for 50% of the total. In the future, our company will continue to take different corporate actions to release our value and enhance shareholders' return. Let me remind you, this year, when we announced interim results at the end of February, I said that there would be a series of corporate actions to unlock our shareholders' value. The sale of NWS shares is the first [ time ] of such core productions. Okay. My fifth point is, let me repeat. Our company has no need for fundraising and there won't be a rights issue that won't be equity issuance. Number six, we will continue to sell our noncore assets in an appropriate way and to improve our financial management, interest rate hedging, RMB loan increase and so on, we will continue to do a good job with treasury management, noncore disposal. So this will be done in an adequate and appropriate way.

Thank you, Adrian. Now let me talk about our company's FY 2023 financial performance. As we all know, the global economy still faces a lot of challenge, for example, interest hike, RMB depreciation. So as a result, some of our businesses' performance was affected for financial performance, our revenue and core profits were up 40% and 21% year-on-year. This is mainly because for PAVILIA FARM I and II, there is HKD 15 billion being booked and K11 performed very strongly. However, because of interest hike and RMB depreciation this year, profits came down 5% year-on-year. And our Mainland business has a large scale. So we were affected by the accounting FX translation impact. As a result, net gearing ratio went up and profits decreased. And then for our financial position, as Adrian said just now, we are very sound. As of this FY, capital resources available amounted to HKD 94 billion and HKD 55 billion was cash, and our final dividend is HKD 0.30 per share. Interim dividend was HKD 0.46 per share, together with NWS special dividend of HKD 1.59 per share. For the whole year, dividend will amount to HKD 2.35 per share. And in FY 2023, despite all the challenges in the overall environment, we have some businesses which achieved good growth. First, property development in Hong Kong. This year, PAVILIA FARM I and II, there is [ 15.6 ] billion being recognized as a result. For Hong Kong property development revenue, it was up around 2x. For Mainland China, in recent years, we focused on Tier 1 core cities. That's our strategy. And together with our brand effect, contracted sales reached RMB 15 billion yearly target. For property investment, K11 performed very strongly, and this is the result of our unique business model of our cultural business circle. For CapEx, all along, we have been strictly controlling CapEx. Every time it is below our budgeted level. In FY 2023, CapEx was less than budgeted amount by HKD 12 billion. We only spent HKD 24 billion. At the beginning of the year, the budget, the estimate was HKD 36 billion. In other words, there is a 1/3 reduction. And in FY 2024, we will continue to greatly reduce our CapEx to below HKD 15 billion. When large-scale investment projects are in the final construction stage in the future, we will greatly reduce construction expenses. Now let me talk about property investment. Overall, income was up 4%. For Hong Kong property investment revenue, it's up 10% year-on-year. This is mainly because the overall border reopening and relaxation of all anti-pandemic measures. The retail environment and office rental markets have improved. In Mainland China, in the first half of the year, there was a lockdown because of COVID-19 and RMB depreciated as a result, our group's revenue decreased. For K11, it performed strongly. Revenue and segment income -- segment results were up 12% and 16%, respectively. In Mainland K11, well, we benefited from the overall resumption and recovery. And so Shanghai K11 in the second half of FY '23 and for revenue and footfall, they increased more than 100% year-on-year. In FY '23, Shanghai K11 shopping mall and office occupancy were maintained at 90% and above. Our financial position was sound. Our financing capability is very strong. With 60 banks, we have built long-term working relationship. All of them supported us. So we have adequate liquidity, and we can enjoy very low financing cost. Let me give an example. In Hong Kong financing, in March to June 2023, we obtained HKD 30 billion low interest loan. Within this HKD 30 billion, HKD 22 billion was refinancing, more than HKD 8 billion was newly approved loan. Interest rates is HIBOR plus around 1.1%, same as before. For onshore financing, in the past, we said we would increase onshore financing. Why? Because borrowing in RMB is lower in cost than offshore. So we have successfully made use of the low interest environment to lower our financing costs, and we have reduced our risk exposure in RMB to guard against risk from depreciation of RMB. Recently, we have obtained a number of low interest onshore loan. Interest rate is as low as 2.8% to 3.2%. And we have issued onshore RMB bonds, including CMBS and Panda bond. The issuance cost was only 3-odd percent and we have successfully lowered our overall financing cost for the group. As of the end of June, such as now available capital resources amounted to HKD 94 billion, of which HKD 55 billion was cash. And then there's undrawn bank facility of HKD 39 billion. So given the above factors, even if HIBOR went up significantly during the period, our average financing cost in FY '23 decreased from the originally estimated 4.9% to the actual level of 4%, basically more or less the same as the average financing cost in first half 2023. Comparing with recurring income of our peers, well, they mainly account for 70% to 80% in their cases, and in the past, we focused more on property development. So 5 years ago, our recurring income only accounted for 20% of total. And that means we would be affected by the cyclical movement of the property market easily. In the past 5 years, we actively transformed ourselves to increase our recurring income. We ramped up our investment property portfolio. In the past few years, we successfully increased our recurring income. However, in the process, we encountered many unforeseeable challenges. For example, in the past few years, there was the impact from COVID-19, continuous interest hike, significant RMB depreciation and geopolitics. So our plan has been slowed down. But don't worry, when our large-scale investment projects enter the final stage gradually, including 11 SKIES, Shenzhen K11 ECOAST. In the future, CapEx will significantly come down. And for these large-scale investment properties, they will be completed in phases next year. So they will generate large and sustainable rental income for the group. We have confidence that in 2026 the share of recurring income will be about 50% of the total. And then in the results announcement, we made 3 undertakings to investors. First, to speed up deleveraging to increase investors' confidence. Deleveraging has been our main work focus. In the past 1 year, according to the plan, we are doing that orderly. So in the coming slides, we will give more details. In the future, we will continue to execute deleveraging plan. Besides in the past few years, our rental property investment recurring income share will continue to rise. So we have confidence that we can accelerate deleveraging. Number two, we said already that the management will not do rights issue or any equity issuance to raise funds. As Adrian said, for 2023, we have already fulfilled our promise. In the future, we'll continue to work on this point. Number three, we said already that we will take corporate actions to release different businesses value in order to enhance shareholders' return, and we can also take the opportunity to deleverage. As Adrian said, for the subsidiaries, for NWS we have already received a voluntary general offer if it is successful, then we can focus on our strategic focus and release value and our cash liquidity can also improve. At different times, we will continue to take corporate actions and phases to further enhance shareholders' return. For acceleration of deleveraging, there are 3 main measures. First, we will optimize our CapEx and OpEx. In terms of CapEx, in 2023, I said already that our CapEx is reduced by HKD 12 billion. We only spent HKD 24 billion. Comparing with the guidance given at the beginning of the year at HKD 36 billion, we are lower by 1/3. When our large-scale investment properties are moving into the final construction stage, for example, 11 SKIES every year, there is HKD 5 billion CapEx and K11 ECOAST is almost completed. So construction expenses can be greatly reduced. Besides for replenishment of land bank, we have adequate land bank, especially agricultural land. So we can benefit from standard premium -- low standard premium mechanism. We don't need to buy land from the market at high price. This can help us reduce CapEx significantly, as you can see in the slide, in the past 3 fiscal years, the final CapEx is always less than expected at the beginning. For FY 2024 CapEx estimate comparing with FY '23 is significantly down to below HKD 15 billion. So back to OpEx. Now for CapEx in FY 2023, CapEx was HKD 24 billion being spent, such as now large-scale infrastructural projects, almost done. We're at the end of the tunnel. We are moving into a harvesting phase in the coming 1 to 2 years. So this will increase recurring income. And if we look at OpEx reduction, if you refer to the right-hand side chart, you can see that our milestone since 2019 till now, OpEx reduction is a savings of HKD 3.5 billion, this OpEx. So recurring expenditure. Now if we refer to G&A as a percentage of revenue, in 2022, were 10.1% G&A expense over revenue. In FY 2023, that is this fiscal year, we're at 7.2%. What does that mean? That means that from a strong -- or heavy CapEx point of view to OpEx reduction, we are doing a very good job. And if you look at the past years, every year, our G&A expenses came down by 4% to 5% every year. For OpEx G&A as a percentage of revenue this year, 7.2%. It is lower than our peers. Most of our peers are at above 10%. We are the only 1 at below 8%. Then for noncore asset sale, well, this is another important tool for deleveraging. At the same time, we can also enhance our organizational structure to improve our operating efficiency. As such as now, we have received from Shanghai Folk, the general voluntary offer of NWS, if it is successful, then we will have more financial flexibility. We can focus our capital in our main property business. And by selling noncore assets will have bigger flexibility to choose better timing for sale, including the potential sale of NWS for FY 2023 asset sale will amount to HKD 27.7 billion. In the future, we'll continue to sell noncore assets at appropriate times in order to recover our capital. The third major measure of deleveraging is to reset our dividend and buy back our bonds to achieve better capital allocation. We believe that prudent capital management can help us better phase up to a high interest environment. The saved capital can offer better financial flexibility. For interim dividend, we have distributed HKD 0.46 per share. And the full year dividend, HKD 0.30 per share. And for NWS with successful approval, then there will be a special dividend of HKD 1.59 per share. Then for the whole year, dividend will reach HKD 2.3 per share. Including the special dividend for FY 2023, growth exceeded 14% in dividend, more than the distributed HKD 2.06 per share for FY 2022. The saved capital will be used to repay existing bank loans to buy back bonds, including perpetuals because such buyback can help our cash flow and profitability, there will be many benefits of doing these. What are the benefits? Right now, the market environment is not good. Our bond price is lower than face value. So as a result, can have the opportunity to buy back bonds and perpetuals at lower price to improve leveraging and profitability. After buying back the bonds, lowered gearing can help us save interest expenses so that we can have more cash, and we can lower further net gearing. For the saved interest expenses, this can enhance our profit and further increase our equity. As you may remember, last year, in December, we took the opportunity of price discounts in the bond market at that time, and we bought back bonds and perpetuals for USD 480 million. And this by bank has generated a gain of HKD 280 million. Because of the 3 major measures just explained, our net gearing ratio will be at a stable level. In December 2022, net gearing was 46.9%. This year, in June -- at the end of June, net gearing ratio was 48.7%. Assuming we complete the NWS project and pay out the special dividend, after that our gearing ratio will come down to around 47%, more or less the same as last year. In the past 6 years, increase in net gearing ratio is because of the following reasons: one, RMB depreciation. So our equity accounting noncash value came down. Now if RMB exchange rate stays at the same level as December 2022, net gearing ratio will be around 47%. And more or less the same as that in December 2022. The management will continue to make use of the 3 measures mentioned just now to accelerate deleveraging. And large-scale projects, for example, 11 SKIES and K11 ECOAST construction will be completed. So our recurring income will increase. The management has confidence that in FY '26, '27, net gearing ratio can come down to around 30-odd percent. Last time, during interim results announcement, we promised that we won't consider rights issue or equity issuance will continue to keep this promise. Please pay attention to the following. Even though there is no offer from Shanghai folk the management in the future will not and does not need to consider rights issue or equity issuance. We'll continue to take corporate actions to release the value of different business lines to further enhance shareholder return and to take the opportunity to deleverage. As Adrian said just now, in February, we already said that this year, there will be a series of corporate actions. And in June, we announced the first deal. Our group will continue to conduct strategic review of various business lines to see how to optimize the strategic focus of each company within the group and to release value. And in phases at different times, we will take core productions to further improve shareholder return. So there will be more and more core reductions coming out. The NWS project can bring about $21.8 billion cash. And after deducting $4 billion of special dividend, net cash inflow will reach $17.8 billion. So this can improve our financial position so that we can enjoy higher financial flexibility. The strategic the strategy focus of new work group can be strengthened. And by means of cash dividend, we can release shareholder value for our shareholders. That will be immediate benefit for shareholders. Now this page is about K11 Hong Kong. Let me comment on K11. After border reopening, in FY '23 second half, K11 MUSEA occupancy reached 98%, Art Mall 99%. So in the industry, we're the highest. In the second half of the fiscal year, you can see footfall increased 67%, for Art Mall 56%. Mall sales for MUSEA in the second half of FY '23 increased 84%, Art Mall 82%. So we can see a few things. First, Tsim Sha Tsui is really busy in terms of footfall. Many tourists, especially those from the Mainland will go to Tsim Sha Tsui and to [indiscernible] at K11 MUSEA. So the whole Tsim Sha Tsui will see a big market consolidation. And secondly, for our VIP sales in K11 MUSEA, it accounted for more than 70-odd percent of total sales. What does this mean? Our K Dollar, our CRM system, control 70-odd percent of our sales already. For our Black Card, it accounts for 30-odd percent. And for Black Card, the spending is more than 1 million a year. So you can see here that the stickiness is very strong. Apart from increase in footfall, stickiness is very good. Secondly, for our operating margin, right now, it has reached a level that is on par with our peers. We have already been opened for almost 4 years. Most big shopping malls and offices needed 17 years, 18 years or 20 years. For our operating margin, we're already higher than theirs. So we are #2 really in terms of comparables. And then for our rental comparing with some malls that have been open for 17, 18 years. Our rental is more or less the same as theirs. So we have only been opened for 3 to 4 years, but then we are faster than our competitors to increase our gross profit margin and our profit also increased fast. So many people are of the view that K11 MUSEA is doing a very good job. It is so magnificent. Can we achieve a payback. In fact, we are faster than others. They took 17, 18 years, we only took 3, 4 years to reach that level after 17, 18 years. Recently, we also responded to the appeal of night lives we organized Night Market By The Sea, waterfront market and so on. These are cultural events that are better than our expectation. Footfall increased 30% comparing with the previous weekend and 15,000 people went to the night market. So there are many patrons to the night market. And today, I think there would be the need for crowd control. [Presentation]

People asked what is happening on the Mainland. Now please do not read news outside. And please don't think that New World is the same as other Chinese property developers. Well, those companies defaulted, that is not related to us because our financial position is sound, and we have brand. And thirdly, we sell premium products. And number four, we work on Tier 1 and Tier 1.5 cities, especially Tier 1. 90-odd percent of our contracted sales come from Yangtze River [ Delta ], Shanghai, Hangzhou, Guangzhou, Shenzhen and Greater Bay Area. So we target at first-tier locations. And our products are for upgraders and those who are wealthy, those with good financial strength. So in the pyramid, we cater for the tip of the pyramid. We cater for those customers. You often talk about the Mainland property developers, and those are in the center and the bottom of the pyramid. So they are not our competitors. We should not be compared with them. We are not in the same league. So I must clarify this point because of this well, we are less sensitive to all these happenings. We have brand, we have quality. We are selling high-quality premium products and also a bit more expensive high ASP products. There is nobody else in this segment. So in July, August and September we sold 5 billion of products. So for example, Guangzhou Park Paradise, we work together with China Merchants and we have projects in Shanghai. We already sold 5.3 billion, and the ASP exceeded RMB 100,000 in Shanghai. This happened within this fiscal year. So I hope you understand that we focus on Tier 1 cities, and we have very strong brand effect. As a result, this is really a very unique way out for us. There is no competitor at the tip of this pyramid. Second point recently, in July to September apart from our brand, our Mainland residential sales increased despite the negative market trend. Now in Mainland cities, what they did not say for a large scale, but then in GBA in Shenyang, in Shanghai. Many policies about only assessing the property, not the long history was put in place. Purchase restriction was abolished and the down payment requirement was also reduced. These are relaxations. If you ask about the Mainland property market, actually, they have different policies for different cities. So I think there are precise policies for specific cities. And actually, the magnitude is GBA and Yangtze River Delta Tier 1 cities. They offer many very favorable policies. For example, in Guangzhou, Guangzhou introduce policies with big force. Last week, once the purchase restriction was abolished, there is an increase by 241% in homebuyer visits number. Many people bought properties. Well, we have already sold like 3 billion to 4 billion already this month. That is in Guangzhou Hanxi for Shenyang once the purchase restriction was lifted, we sold RMB 1 billion already. And more than 100 units were completed in settlement. So in the past few 3 months, we already sold that much. Now our FY '23, we sold contracted sales of 5 billion. We sold 5 billion in July to September already. So for the whole year, RMB 15 billion contracted sales for Mainland China is definitely achievable. We may even be able to achieve more and collected cash will be even more. Besides, in the future, on the Mainland, there will be gradual relaxation month after month in all cities, in Guangzhou, Shenzhen, Panyu, Shanghai, there will be gradual relaxation and more and more relaxation. So after relaxation in Shenyang and Panyu. Let's take a look... [Presentation]

At the tip of the pyramid, well these customers, many of them are upgraders. Why? They may have sold the company. They have a lot of bank deposits. There are huge amount of bank deposits now. So they like to take the opportunity to buy a property for themselves so they can live happily. A lot of the funds are on the mainland, and they just place the money in deposits. After relaxation, they don't know whether there will be further relaxation in the future. So they rather take the opportunity to buy now. So there are many upgraders, many first-time buyers. So in the tip of the pyramid and also the middle level, there would be big demand, very big demand, especially in Tier 1, Tier 1.5 cities. In Hong Kong, our property development performed well. Segment results was up 42% year-on-year, mainly because of revenue recognition of PAVILIA FARM I and II. So for border reopening, for NCB Innovation Center contracted sales reached HKD 6.5 billion. Since the launch of the project already more than 80% of the GFA. And in September last year, we sold 51% share of Cheung Sha Wan commercial building at HKD 3.1 billion. We sold it to SSG Capital of Singapore. Now this project was rated by Euromoney as best workspace developer. Now there are more people buying office buildings, especially at 888 Cheung Sha Wan road. Many Chinese companies would like to buy 3 to 6 stories as their head office. And also, they'd like to be able to name the properties in the company name. Now next year, we plan to -- or actually after March next year in [indiscernible] and so on, there would be many big projects to be launched. So for contracted sales after March next year, there will be a lot of contracted sales coming back next year, after March and April, we will launch around 3,000 units. So there is still time now. We still have half a year to monitor the market and determine our strategies. For the medium to long term, in terms of replenishing land bank, as you know, we have 50 million square feet of agricultural land mainly in Yuenlong and Fanling North. We believe that the Northern Metropolis will be the future engine of Hong Kong and most of our land. Most of our 15 million square feet is in Northern metropolis. Now we have 7 plots in the process of land exchange. Our goal is within 3 to 4 years, we can successfully exchange the land and included into our land bank. Altogether, we can develop GFA up to 3 million square feet. Now we said successful exchange in 3 to 4 years. Well, we are not only including the area into the land bank in the fourth year. Actually, for these 7 plots, 3 million square feet of GFA will be gradually included in our land bank. This is for the short term. For medium to long term, we have around 10 million square feet of GFA which we will do land exchange. This is for the medium to long term after 3 to 4 years, around 10 million feet of GFA. So in total, for short, medium, long term together, we have 30 million square feet of GFA to be included in our land bank. Recently, in Fanling North, we have a plot with GFA 1 million square feet, and we took the lead to accept the standard premium mechanism. Firstly, the price is reasonable. If you compare announcement exchange price in the periphery, we are the lowest in price. And number two, plot ratio, comparing with the beginning rose 18x. Number three, all the infrastructure role facilities and supporting facilities such that we can start development very soon. Okay. We'll continue land exchange. At present, we hope to do exchange of agricultural land over a large scale to release more value. Let me give some examples. Now we are working on Wing Ning Tsuen, Tong Yan San Tsuen, and also Lung Tin Tsuen Phase 5. You can see the plot ratio is quite good. The plot ratio will increase from 3.6x to 6x. So 4 million square feet of GFA can be released, providing more than 7,000 units. So recently, the plot ratio increased significantly. So from 0 to 6, from 0 to 3.6, and from 0 to 6 in these 3 cases. So plot ratio is getting more and more generous. As such as now, in these few years, we invested a lot in large-scale rental properties. So these are recurring income for us. So we are gradually moving into harvesting phase. For 11 SKIES, it is huge. So it will be opened in phases. GFA is 3.8 million square feet. And in the coming 1 to 2 years, it will be gradually opened in phases. Number 2, Kai Tak. There is a 700,000 square feet of infrastructural projects. It will become a shopping landmark, which overseas visitors must come. 700,000 square feet will become a Kai Tak sportainment retail complex. So next year, it will be opened in the second half of next year. In the second half of the next calendar year, 700,000 square feet, and that is also K11 in Shenzhen next year. At the end of 2024, it will be opened in phases. GFA is around 230,000 square meter. It will be like Victoria Dockside, it is in Shenzhen. With all these opened, our recurring income in the coming 1 to 2 years will increase a lot.

Thank you, Adrian. Now is time for Q&A. [Operator Instructions] First question about recent rumors in the market, there are many rumors about New World's financial position. They're worried that we will encounter problems. What is your response?

As Adrian said just now, the market is very weak now. So the market is very sensitive. Any rumor can lead to big shocks. We state again, that's concerning the untrue remarks in the market, they are actually rumors in the market. So there are people who may take the opportunity to manipulate our market -- manipulate the market. They are taking advantage of our 3-month blackout period. At the end of June, that was the NWS project. During the 3-month blackout period, we cannot take any actions in the market. We cannot contact investors to talk, and we cannot buy back stocks or bonds. So today, we'd like to take this opportunity to explain things clearly. First of all, New World's financial position is very sound. Our financing capability is also strong. Secondly, we will accelerate deleveraging. We will be prepared to buy back bonds perpetuals because now it is a high interest environment, this is the best time for buyback for the sake of our profitability, and there is also a positive help to the lowering of gearing. And the third point is there is no doubt that this year is difficult. Interest rate is high. There are many external challenges. But the worst time was over, we're at the end of the tunnel. So things will only improve. Next year, we will enter the harvesting phase. Our goal is by 2026, our recurring income and property development income will be 50-50 in ratio.

An investor asked for recurring income. Does that include NWS? Now we assume that the NWS project will be completed. So that means NWS' recurring income will not be included?

As Adrian said, in the past 5 years, we invested a lot in investment properties. So now we are in harvesting phase, our recurring income can increase. So that's why by 2026, we are confident that without counting NWS' recurring income, we will still exceed 50%. Let me explain again, as I said at the beginning, do it. If you look at we don't need so much CapEx already. This year, CapEx was HKD 50 billion in FY '23, HKD 24 billion. So it is a big reduction already. So for OpEx, we are the lowest in the industry. If we divide that with our total revenue, every year, we are reducing it by 4%, 5%. So deleveraging is our commitment. And number two, Net gearing is high, but that doesn't mean that we have funding problem. Many people use that point to attack us and to spread untrue rumors. There are even unexplainable terms in the market. We don't know what those are. We have not seen them and we have not agreed to them. We have not asked people to do it. So that's why we reported to the police and we asked law enforcement agencies to follow up because we suspect that it is a move of manipulating the market. Number three, well, there is a blackout period for 3 months for us. Well, there has not been such a long blackout period for the others. So that is the best timing for them to do all these. So we need to give complete clarification today. We are strong financially. We have very good strength besides we will accelerate deleveraging. We are getting ready to buy back our bonds, including perpetuals. As you can see, on the Mainland, cash flow is much faster than expected. For built properties at K11 revenue is increasing fast. Next year, in Hong Kong, I said March. Well, there will be a lot of contracted sales coming back, even if you discounted the cash flow won't be small.

Right. Next question is about NWS -- sale of NWS. Some time ago, the group announced to sell NWS shares. What is the progress so far? Without this cash count, are you worried that your future results will be affected? And how can you offset that or compensate for that?

Such as now, when we announced interim results, we will take a series of corporate actions to release value. So sale of NWS is the first step of our planned core reduction. There will be a lot of merits to our group. At attractive premium, we will be selling and NWS shares, which have been at a discount for a long time, and then we can get back a lot of cash. People asked, without this cash count, what are we going to do in the future? Now we received of HKD 1.4 billion every year from NWS. If the deal is approved by independent shareholders then at one go, we can get back HKD 21 billion. from the sale of NWS. That means we are receiving 16 years of dividend at one go. Now we are in a high interest environment. We can make use of HKD 17.8 billion of cash to buy back bonds and to lower financial expenses. And it can also support our properties and related business long-term development. Of course, we have to create value for our shareholders. If shareholders approve this deal, then HKD 4 billion will be used to distribute a special dividend to pay back to shareholders. They can get HKD 1.59 per share. because of regulatory rules at this point in time, we cannot disclose more. Please pay attention to future announcements.

During COVID-19, the company has not reduced interest. But now the economy is recovering, and you are reducing interest at a faster pace than other developers. Concerning future prospects, is it true that you do not have much confidence in future prospects and future economy? So this question is about the reduction in dividend.

Well, for dividend level, it reflects the overall economic situation and the company's profitability. When the market is challenged, just now I said that interest rate now is high. We have to reserve our cash and capability. Investor asked, are you going to reduce dividend further? And will you change your dividend policy? Well, this year's dividend decision is one-off. This time, we reduced dividend. It is a one-off exercise. With this reduction, we can use the money to buy back bonds. At the same time, we can buy back bonds and perps, and this can be done fast. This is our commitment to the whole world. That apart from buyback, we have commitment to deleverage. And this dividend reduction is only one-off. When our profitability goes up, we will resume our dividend level. So please don't worry. My third point is now we need to reset because the world has changed the cycle has changed. We must reset and then transform. Our commitment to reset and transform and move on is very important. So please don't worry. This is just a one-off dividend move.

Next question about our gearing. For future net gearing ratio, does the group have any guidance such as now?

This year, we control CapEx stringently and gearing ratio is maintained at a stable level. Investors would ask for our guidance for FY '24, '25, '26. As such as now, given the high interest environment, we will continue to control cost and CapEx. So we have confidence to keep it at 40% or even lower. In FY '26, when our recurring income continues to increase, then it may fall to below 40% at 30-odd percent, right? In '24, '25 we will be at around 40-odd percent, and we will come down gradually, but it will still be at around 40-odd percent. It will not fall sharply. But when recurring income increases, we'll continue to reduce CapEx. We don't need so much money. Then by FY '26 -- can you show the slide about dividend? Dividend -- this one. The previous slide on dividend, not this one. The 1 showing up to 2026 gearing. You can see that gearing will fall. And then in fiscal '25 and fiscal '27, it will be at mid- to high 30%. So we have commitment to deleverage and to reassess and our commitment to transform will be implemented in these coming years, but it doesn't mean that we won't be profitable.