Sun Hung Kai & Co. Limited (86) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. On behalf of Sung Hung Kai & Co. Limited, I would like to welcome all of you to the company's 2020 annual results investor presentation. The presentation will be conducted in English. You may choose Chinese or English channel at the bottom of the interpretation button. Alternatively, you may switch to the Chinese channel and mute the original audio if you need translation. [Foreign Language] [Operator Instructions] There will be an opportunity for you to ask questions after the presentation. It is my pleasure to introduce to you the senior executives from the company, Mr. Robert Quinlivan, Group Chief Financial Officer; Ms. Elsy Li, Group Treasurer and Head of Corporate Development; and Ms. Lindsay Wright, Chief Executive Officer, Funds Management. In today's meeting, the management will talk about the company's business performance in 2020 as well as investment highlights and future strategy. After the presentation, the management will take questions from participants. Now may I invite Robert to start the presentation? Robert, please.

Well, thank you very much, and welcome, everyone, to our results presentation. Okay. So to set the theme, I'd just like to refresh you on our corporate history. As many of you know, our heritage goes back to 1969 with the start of the brokerage business. Through our listing in 1983 to the acquisition of the majority stake by Allied Properties in 1996, we continue to grow and expand our expertise in financial services. The establishment of the UA business in Hong Kong and eventually China brought us into the consumer finance business as we expanded our own operations in Hong Kong to include wealth management. In 2015, we began the next phase of our evolution by partnering with Everbright in wealth management business, and we launched our mortgage business and started to build out our investment management capabilities. In 2020, we completed the sale of our remaining stake of our brokerage business and extended our investment management business into fund management. With each step, we build on our past successes and leverage the networks that we've built over the last 50 years. So to our company overview, we aligned the business segments into 2 categories, financing and investing. Our core lending business aims to provide stable returns and strong cash flows while our investing seeks new income streams and opportunities for increased returns. This complementary business portfolio made 2020 one of our strongest years ever. And we feel it further validates the strategic transformation we embarked on 5 years ago. Our lending businesses provide steady cash flow and organic growth through consumer finance, mortgages and specialty finance. Investment management focuses on higher returns across more sectors and geographies. We now have almost HKD 15 billion in assets across public markets, alternatives, investments and real estate. Looking forward, we will continue to develop and extend the investment management businesses and launch a fund management platform, which will manage external capital and bring additional assets and revenue. As we continue to grow our earnings -- our offerings, we believe that investment management business and funds management will be key drivers of our future growth. And importantly, we have launched our first 3 partnerships since year-end, and Lindsay will discuss more about these in a little while. So to the investment highlights of 2020. Certainly, it's been an eventful year. Through it all, our financing businesses have been resilient and continue to provide stable cash flow. Our investment management businesses managed the extreme volatility in the first half and was well positioned to capitalize on opportunities which arose in the second half of the year. The result was a record pretax profit, up 65% year-on-year. The group has a consistent track record of dividends and buybacks, which has returned significant amounts to shareholders over the years. And we plan to continue our buyback in 2021. And we're very excited to launch our fund management business, Sun Hung Kai Capital Partners, which we'll hear more about shortly. And turning to our results. As mentioned, the headline numbers are very, very strong, strong increase in profits, earnings per share and book value per share significantly increased from 2019. Attributable profit up 22% to HKD 2.5 billion. Earnings per share are up 23% to HKD 1.283, and book value per share up to HKD 11.4. Our dividend has continued, and we will continue with our share buyback as well, a strong result in a challenging year. Putting 2020's results into comparison with prior years, we see we've continued on the track we set out 5 years ago in the group's strategic transformation, strong earnings, further improvement in return on equity to 11.6%, with consistent dividend and continued share buybacks. Gearing has reduced as a result of receipts from cash from the sale of the brokerage business, continued monetization of investments and the preparation for the spinout of our investment funds. Looking into our segments. As mentioned, Consumer Finance was resilient and contributed HKD 1.2 billion, a slight reduction from the prior year. Specialty Finance prudently made provisions for certain loans primarily in relation to exposure to the hospitality sector. As a result, the segment recorded a loss of HKD 132 million. Mortgage Loans were steady and contributed HKD 113 million, a reduction of 7% over the prior year as we prudently reduced our exposure and increased provision levels. Sun Hung Kai Credit is entering the next phase of its growth, including the development of our investment origination and asset servicing platform. Our investment business was a standout contributor this year with a 65% increase year-on-year to a contribution of HKD 2.1 billion as we benefited from investments over the last 5 years and opportunities which presented themselves in the market during this year. For Group Management and Support, we incurred some drag associated with prudently managing cash balances during the year and due to the decline in fair value of certain assets held for liquidity purposes. Now I'd like to hand over to Elsy to talk through our balance sheet.

Thank you, Robert. Despite the market volatility and COVID, we continue to maintain a strong balance sheet and liquidity position. As of 2020, our total cash and cash equivalents were $7.3 billion, total loan outstanding were $15.3 billion, and total investment asset was $15.7 billion. Our short-term loans were mostly funded by bank loans and short-term facilities, and our long-term loans and investments were funded by our long-term debt as well as equity. In the next page, you're going to see the capital structure and funding. In terms of funding structure, our total borrowing was at $16.6 billion at the end of the year, of which $8.5 billion were bank facilities and $8.1 billion were from our MTM ECP programs. The net gearing ratio in 2020 remains conservative at 41.4% compared to the 54% in 2019. Our interest coverage ratio further improved to 5x from 4.5x in 2019. Overall speaking, our capital and funding structure, together with our strong cash position, have well positioned us to continue to weather the volatility in the capital market as well as the challenges in the real economy and allow us the flexibility to take on advantages of market opportunities when they arise. Now we'll go to our business review, starting with the financing business. Our retail financing business, which operates under the brand name, UA Finance, is one of the core business of the group. We have been in Hong Kong market for close to 30 years and continues to be a market leader. The UAF operation has been a stable contributor of the profit to the group despite the social unrest in 2019 and the once-in-a-lifetime COVID event in 2020. Here is the consolidated business performance of UA Hong Kong and China, and I will go into the respective operations in more detail on the next page. As of 2020, our total loan balance outstanding was $11.3 billion, a slight increase from 2019, of which 73% were from Hong Kong and 27% were from China. The total revenue was $3.3 billion, pretax revenue -- pretax profit at $1.2 billion, which reduced slightly from 2019 due to the COVID lockdown in the first half of last year and offset partially by the lower funding costs during the year. The net impairment loss of HKD 769 million improved 4% compared to 2019 mainly due to a more stable economy in the second half of 2020. Overall cost-to-income ratio remained steady around 33.4%. Here is the performance of Hong Kong and China markets for UA. As you have noted in our first half results, our business performance were impacted due to the outbreak of COVID and the lockdown in Hong Kong and China. That said, for Hong Kong, we have seen substantial improvement in business activity in the second half due to the various subsidy schemes from the Hong Kong government, the influx of liquidity from central banks around the world and a gradual resumption of commercial activities around the city. As a result, our business rebounded in second half. Our total loan origination for the year 2020 reached $10.4 billion. Total revenue was at $3.3 billion. Overall asset quality improved. Charge-off ratio reduced slightly to 4.8% in 2020 from the 4.9% in 2019. The net impairment loss ratio also improved to 5.3% from the 6% in 2019 as the government subsidies help alleviating the employment pressure in the city and of our borrowers. Coping with the new normal under COVID, we were among the first in Hong Kong to roll out our facial recognition and KYC features via our mobile app, Yes UA, as we also expedited the real-time drawdown capability of our app. As for China, our business KPI improved as a result of removal of lockdown in the second quarter and the resumption of commercial activities in China. Total loan originated was at $4.2 billion. Charge-off and net impairment loss ratios improved to 12% and 7.4%, respectively. During the year, we also strengthened our cooperation with various e-platforms in China such as China UnionPay, All in Pay to expand our customer reach as well as further strengthening our credit scoring model with more sophisticated anti-fraud screening capability. Now I'll pass to Robert to talk about the rest of the financing business.

Thank you, Elsy. So on to Specialty Finance, which is the group's structured and specialty financing business, which provides tailored funding solutions to corporates, investment funds and high net worth individuals. Almost all the loans are either secured by assets or had other guarantees from corporates or high net worth individuals. As well as our term loan business, this year, we have reclassified our investment in LSS, a financing joint venture in PRC, into this segment. Also, we have recorded preference shares received as part consideration from the sale of our interest in Everbright Sun Hung Kai into this segment. The commentary and graphs [ we show ] focus on the term loan business, consistent with prior periods. Although the period end term loan balance increased compared to the prior year, the average loan balance was lower as certain lines were paid back and were not replaced until later in the year. Prudently, we increased impairment allowances largely due to the effects of COVID and in particular in the hospitality sector. However, we expect that as the economy opens, we may see some reversal of these provisions in future periods. Importantly, we entered into some new loans late in the year. And going forward, we are cautious, though, see plenty of demand for well-collateralized loans and expect business to improve in 2021. On to our mortgage line business operated by Sun Hung Kai Credit. This business had a very steady year particularly in view of the uncertain environment. This business has achieved maturity and scale and is now poised to evolve further as a lending and origination platform that is able to increasingly generate fee income. Our loan balance was slightly lower, but revenue increased, reflecting better loan returns. Our conservative underwriting whereby we -- our loan-to-value ratio is on average less than 65%. And that 94% of our loans are first mortgages means it's a conservative book. We have low impairment losses, though these increased slightly over the prior year in view of the environment. Our focus in this business is on investing in people, infrastructure and financing strategies. And as mentioned, we look forward to continuing to generate fee income through origination and asset servicing. Moving to our investment management business. Our investment management business leverages the group's expertise, network and strong financial position to seek attractive risk-adjusted returns and investment opportunities. In 2020, the segment contributed HKD 2.1 billion to pretax profit, an increase of 65% from the prior year. We all know 2020 was a volatile year particularly in the first half and with the second half of the year providing good investment opportunities across sectors. We saw over HKD 1.8 billion in realized gains, dividends and rental income. Our alternatives portfolio continued to mature, and we saw record-high distributions of HKD 2.5 billion. Also, we have visibility on a number of meaningful distributions in the first half of 2021. Over the past several years, we've built up a strong global network of investment professionals and partners. And we are now ready to expand into the Funds Management business, which Lindsay will soon talk about. Looking to our investment returns. Our portfolio of investments continues its track record, delivering net gains with an overall return of 16.9% compared to 11.9% recorded last year. The standout performer was our alternatives segment with a 24.7% return, a significant increase over the prior year. In public markets, our investment value decreased primarily as a result of preparing to spin out our equity long/short fund. The reduction in real estate values were due to prudent provisions for expectations of falling commercial property values mainly in Hong Kong. Let's look into each of the segments in a bit more detail. Public markets portfolio is the company's internal managed APAC long/short strategy. As mentioned, this strategy was wound down at year-end and then spun out and launched in January as an external strategy managed by East Point Asset Management, which consists of former Sun Hung Kai & Co. staff members. The equity holdings were global with a focus on companies in Asia Pacific or that use APAC as a significant driver for growth and value. The team's proprietary research and access to networks allow deep understanding of the company's and markets. Our credit portfolio returned solid results in 2020. Our strategy was to identify and invest in credit situations globally, which presented attractive risk/reward profiles with near-term upside with net long notional bias at the portfolio level. Global markets were volatile, as we know, during the year but recovered to positive returns during the year on a lower invested base. Our corporate holdings represent a mix of long-term strategic positions together with some shorter-term positions. I'd like to look at alternatives, which had a strong year, achieving 24.7% return. Our alternative investments includes hedge funds and private equity investments both as external funds and as direct or co-investments. Hedge funds had an outstanding year, returns of 40.6%, materially outperforming benchmark returns, noting that the Eurekahedge Asian Hedge Fund Index returned 17.5%. For private equity, over the past several years, we've invested the group's capital thoughtfully and built out a portfolio of private equity funds, direct investments and co-investments to enhance returns and diversify exposure by industry and geography. The portfolio is invested through a combination of direct or co-investments as well as external managers who were selected based on performance, strategic fits as well as access to markets and sectors. As the portfolio matures, we're in the process of monetizing many of the earlier investments we made, receiving HKD 2.5 billion in distributions. At the same time, we continue to make new investments in funds, direct investments and co-investments. As we look into a little more of the details of the alternatives book. As mentioned, each segment had a good year. Private equity portfolio has a global exposure with a focus on China. Our major sector focus was on health care, tech and TMT and financials. The portfolio benefited from early positioning in growth sectors and companies. Our key direct and co-investments include the Wuxi Pharmaceutical group of companies and financial and fintech names, such as Fairstone, consumer finance group in Canada; and Jefferson Capital Systems in the U.S. With the group's network and expertise, financial services will continue to be a core theme of our portfolio. As mentioned, the hedge fund portfolio significantly outperformed benchmarks through superior asset allocation and manager selection. Outweight allocations to China added to outperformance. Since year-end, we have hired additional team members to further rebalance and optimize the hedge fund portfolio with the goal of reducing risk and unwanted volatility and increasing the consistency of alpha generation over the cycle. Finally, to real assets. The real assets portfolio includes all the group's real asset holdings and had a valuation of HKD 2.6 billion at year-end, slightly down from 2019. The portfolio includes the group's investments in Hong Kong commercial real estate as well as hotels and commercial investments in global markets. During the year, there was a small loss in the portfolio as a result of increased provisions on property valuations mainly in Hong Kong. After year-end, the group entered into a binding agreement to realize its interests in Parmaco, a Finnish company which specializes in building and renting building for schools, daycare providers and nursing homes. And this was an investment we entered into alongside Terra Firma and Metric Capital. Real estate is a core strength of the group and an area where we expect to grow our portfolio going forward. Now I'd like to hand over to Lindsay.

Hi. Good morning, everyone. I'm very excited to be here this morning to talk about our newly established Funds Management business. As Robert has articulated, over the last 5 years, the company has built out the investment to our platform by leveraging our capital, business expertise and network and financial services. During this period, we established the investment management business and have built out a strong and diversified portfolio across alternatives. We believe our investment experience gained and returns generated by IM has put us in a very strong position to expand to our next phase, being the pivot to Funds Management. This pivot has commenced, and we are making good progress. The development of the funds business is taking 2 forms. Firstly, developing long-term partnerships with emerging managers and providing acceleration capital to newly established managers. This is reflected in the 3 partnerships announced today: firstly, East Point Asset Management, which is the equity long/short fund with an Asia Pacific focus, ActusRay Partners, a discretionary probabilistic investing fund with a Europe focus; and E15 VC, a venture capital technology fund with a global focus. And in addition, we're launching our own fund, notably Multiple Capital Investment Partners, which is a real estate private credit fund; and SHK Capital Partners Fund, which is the fund of hedge funds offering which will be global in nature. Going forward, we expect the Funds Management business to be meaningful -- to be a meaningful driver of growth with sustainable growth in assets under management and revenue driven by additional revenue streams coming from partnership revenue, revenue share and management and performance fees from our own funds. Our core objective is to build out a diversified leading Asian alternative investment business leveraging our existing investment platform, corporate services and marketing and distribution reach of Sun Hung Kai & Co. In addition, earlier this week, we received an approval in principle for a Type 1 and 9 license here in Hong Kong. It is expected the license to be accredited within the next 2 weeks. Turning to the next page. I would like to outline in more detail our Funds Management model. In summary, our model has significant advantages. Firstly, very strong financial backing; secondly, our capital is patient, and most importantly, we're very flexible in our approach. As noted previously, our platform buildout occurs in 2 ways, one through partnerships and through -- and secondly through the establishment of our own funds. In particular, I would like to comment on our partnership model. In addition to our interaction model, we seek to build partnerships across the alternative spectrum and not to hedge funds. We interact with managers and emerging talent in 4 ways. Firstly, through an incubation model, individuals without a developed track record, Sun Hung Kai can bring them in-house and onto our platform and allocate balance sheet capital. Secondly, we collaborate. For teams ready to launch their first fund, we provide seed capital and related services. Thirdly, we provide for existing managers acceleration capital either in an existing strategy to drive it to scale or to support them on a new strategy. And fourthly, as a limited partner for established managers, we can invest alongside other LPs. A key difference of our model to others is our flexibility and our interaction. We can interface with the best talent regardless of the stage of their development. And importantly and I'd like to stress this, we are actually prepared to do that. In addition, we have a range of other important features that are attractive specifically to new and emerging managers, namely providing working capital and warehousing of opportunities for private market funds. We have a very strong pipeline and look forward to announcing new partnerships and the launch of our own funds over the course of 2021. Now turning to our corporate risk management framework. The group adopts a comprehensive risk management framework. Risk management policies and procedures are regularly reviewed and updated by the Board to react to changes in the market and the group's business strategy. The Risk Management Committee as a standing committee reporting to the Board, it acts to oversee the group's risk management and monitors internal control systems. We see risk management and compliance as the responsibility of every member of the firm and expect everyone to take ownership of the process. The compliance team and risk committee have regular updates of the procedures and policies to adapt to emerging risks, such as those that have arisen from the coronavirus and the need for a remote work environment. As you would expect, with the pivot to Funds Management and the required licenses to operate, risk management will continue to be enhanced and expanded to meet the respective regulatory requirements. Overall, our risk management framework is designed to enable us to achieve strong financial performance and, importantly, deliver on our strategy within the group's risk appetite, stringent framework and compliance regime. We remain focused and vigilant on emerging risks and seek to amend and enhance our framework to address such risks, a good example being the ongoing risk of cybersecurity. And finally, I want to comment on our business outlook and future plans. So in summary and as has been articulated by Rob and Elsy through the presentation, 2020 has been a very strong financial year for SHK & Co. The strategic plan we have previously communicated and our transformation to a leading Asian alternative investment firm is well underway. The implementation of our pivot to Funds Management has strong momentum. Our core business of financing continues to perform well. As we move forward into 2021, we as a business remain very focused on this transformation by: one, further developing our alternative investing business model, this is both balance sheet and funds, with a focus on the delivery of strong risk-adjusted returns and a buildout of a well-diversified portfolio; secondly, maintaining well-diversified funding sources and liquidity to provide the necessary staying power to enable our business expansion and transformation; thirdly, by actively exploring, and I think, importantly, exploring collaboration between the 3 business groups, this is driving cross-sell and efficiency; and fourth, delivering a consistent level of dividends and a continuation of the share buyback program in 2021. The particular focus of each of our 3 key business lines for 2021 is as follows. For funds, it's about execution of the partnership pipeline and the launch of both partnership funds and our own funds. And particularly with our own funds, this means our real estate loan fund and our fund of hedge fund offering. Secondly, for investment management, increased risk management of the existing portfolio due to elevated pricing, the strengthening of our due diligence process around opportunities and, importantly, continued investment in teams and technology to support the growth of the portfolio. And thirdly, with financing. In our core business of financing, we remain open to new business opportunities. However, we retain a very cautious approach. In addition, we continue to invest in people, technology and infrastructure to drive growth and efficiency. Thank you very much, and we look forward to your ongoing support.

Thank you, Lindsay. We will now proceed to our question-and-answer session. [Operator Instructions] May we have the first question, please? [Operator Instructions] The first question comes from Evaluate Research. They would like to ask the management, how has been the business recovery in Hong Kong and China?

Do you want to take it?

Is this relating to the financing business?

It is related to the overall business environment about the business recovery in Hong Kong and China.

Maybe you can start.

Yes. Perhaps I can start with on the financing business. I think -- I mean as you have seen from our first half results, due to the lockdowns and the volatility in the capital market, the first half of our business operation has been in a very slow-moving mode, I would describe, due to the business activity has dropped down substantially and uncertainty around the COVID situation. Hence, from a business perspective, the financing business has been very prudent in terms of balance sheet management and liquidity positions. Hence, we're trying to focus on our core group of customers and products and trying to recycle capital judiciously. With the removal of lockdown and the gradual resumption of business and people interaction in the second half, all our operations in Hong Kong and China has reopened. And given the subsidies from China, the liquidity -- as well as liquidity in the market as well as the resumption of the business level, we saw an increased demand for credit. And also, we saw a steadily trending -- improving trend on our asset quality given the subsidies that -- especially in Hong Kong is the ESS program, which gives the employee subsidy for 2 phases. That actually helps stabilize, I think, asset quality for the industry as well as us. So I would say the second half, we saw a pickup around the 3 -- end of -- towards the end of 3Q and in 4Q. But we have been very prudent and conservative in Q -- in the first Q, we're trying to weather the storm.

I think I'll just add a comment there in terms of the Hong Kong residential market. It's proved to be very stable even though we are cautious. Property prices in Hong Kong on the residential side have been quite stable and haven't caused us too many concerns to date.

Thank you. The next question goes to [ Eric ] from Snowball Investment Limited. He would like to note that payout ratio dropped from 30% to 20% in 2019 and 20% in 2020. Can you elaborate the dividend policy and this go -- will this go forward?

I'll take that one. So yes, we've kept our dividend consistent this year. Obviously, our financial results are significantly up. We've been through a reduction in payout ratio. Yes, our approach is to keep dividends consistent. We look to increase our share buyback plan in the year, which we see as an alternative to increasing our dividend, and look to continue our long history of returning capital to shareholders. Our dividend yield at the moment is around 7%, which is we believe a strong return in the market. And we look forward to that continuing.

Thank you. May we have the next question, please? [Operator Instructions] The next question is from [ Rose ] from [ Sino Investment ]. As the Guangdong-Hong Kong-Macau Greater Bay Area is gradually opened up, does Sun Hung Kai & Co. have any development or investment plans in such areas?

Go ahead.

I can talk a bit more on the financing business. And I think the Greater Bay Area has always been our core focus since the UA business or the lending business go into China. Shenzhen remains our biggest -- I mean effectively, the headquarters of our China operation. And we have deployed a substantial amount of capital and resources and human capital into it. And this is also an area we'll continue to focus because it has historically been our most profitable area as well, our most profitable region among China. So going forward, I think in addition to redeploying more efficiently -- redeploy our capital more efficiently in China to focus on the Greater Bay Area opportunities, I think we will always seek to enhance our product offerings to better serve the emerging needs in the Greater Bay Area -- in our customers in the Greater Bay Area.

Yes.

Thank you. The next question comes from South Ocean Management Ltd. They would like to know, at what share price would you stop repurchasing shares in the market?

To be honest, we don't have a target for what -- at what price we would stop. We continue to expect to purchase shares throughout the year, and we don't have a cap or ceiling in mind.

Thank you. The next question comes from [ Gordon ] from [ FNTB ]. What's the change in Chinese government policy on UAF China business? What's the business outlook?

Okay. For the second...

[ UAF China ].

Yes. Understanding the background that -- where you're coming from, let me just relate that to the licensing situation for UA. UA has been a micro -- has been a micro lender and is registered with the local FSA for about 12 years. And we have been operating under the micro-lender license for all our subsidiaries in China. And I think the recent changes on the capital -- on the interest rate charge on customers as well as the new licensing regime for the online lending platforms may not directly have an impact for UA -- the UA business because we have traditionally become a balance sheet lender and leverage our own equity and also seeking bank funding under the compliance of the CBRC or FSA rules. So those new restrictions might not apply to the UA business. However, UA as a part of the -- as UAF in China as a part of the continued strategy to shift our operation online, we do apply for and have the online lending license, which is based out of our Shenzhen operation as well as our Shenyang operation. So those are under different jurisdictions, but those are 2 license entities. Again, the new movement in the [ FSC ] holding as well as the micro -- the CFC rules may not apply to UA because they are licensed still under the FSA in [indiscernible] in China and also operating under a [ UP ] status as well.

Thank you, Elsy. The next question goes to [ Eric ] from Snowball Investment Limited. He would like to know that -- he noticed that there is a significant amount of capital lock in China consumer finance and generate a low return. How would you enhance the performance of this portion and further develop it?

[ I will start first ]. So yes, as Elsy mentioned, the licensing regime in China is under the micro-lending license, and each city office has its own capital. As Elsy mentioned, as the business shifts more to an online model, we look to try and optimize our capital in China. And we have, over the past several years, been able to repatriate certain amounts of capital wherever possible. It's an ongoing process and one that we anticipate will continue as we look to really -- to make the most use of our capital in China.

Yes. I'm just adding to that. I think the capital is -- the registered capital, in order to operate in respective region, we need to keep the capital a certain amount of registered capital in China. However, going forward, operating efficiency enhancement is definitely one of the things that we have been doing for the last 5 years, trying to enhance our return. And I also think that irregardless of how we further improve our operation, our license as a micro lender was -- our leverage ratio has been capped by the central government or the regional government. So there's room to improve, but also at a certain stage, there's a cap on how much we can lever up and recycle our capital based on the local regulation.

Thank you, Robert and Elsy. The next question goes to [ Tian ] from Santa Lucia Asset Management. For the Fund Management business, is there any target size we are looking at in 3 to 5 years? And any target on how much pretax profit would this segment generate in 5 years?

I'll take that. Thank you for the question. In terms of target allocated capital to date, we have allocated approximately USD 600 million to the funds business. Our objective, as we partner with either various partners and/or launch our own funds, is to seek external capital over the next 1 to 2 years of at least 50% of our commitment. And certainly, we've seen that from our -- 2 of our early raises that we've achieved that already. But we intend to just monitor this on a step-by-step basis and then in line with debt allocation of capital, the sourcing of third-party capital that will flow through to expected revenue and contribution to EBITDA over the next 3 to 5 years.

Thank you, Lindsay. We've got a follow-up question from Ketan from Evaluate Research. Can we expect a further improvement in the net gearing ratio in 2021 and beyond?

Currently, our net gearing is at 41.4%, which is relatively low compared to some of our peers and also has been very conservative. I mean the overall return profile of our company is twofold, right? First of all is how to judiciously use capital and recycle our existing capital to enhance return. And then the other one is when opportunity arises, how to leverage the gearing to further enhance our capital structure. I would say the room -- I mean our target capital level for the last 2 decades is always somewhere between 45% to 55% range. Assume this is purely organic operation. And we do expect that when opportunity arises, we should be able to improve our capital -- improve our gearing to enhance the equity return, the ROA as well as the ROE. But at the moment, given the volatility and uncertainty in the market, we tend to be a bit more conservative at the moment, having the experience of the first half last year and seeing that -- have not yet been able to realize the benefit of the vaccine yet. So we tend to be a bit more conservative especially on the financing. And after all, our portfolio is very seasoned, very stable. Hence, asset quality preservation has been a priority. And then it's the growth as well as the profitability of the business. So I'll pass to Lindsay and Rob to talk about on the investment -- our investment businesses.

Yes. So I just have a comment to add there. And as Elsy mentioned, we've typically been 45% to 55%. It's a little bit low at the moment also because of some sort of one-off-type factors, one of which being, as we mentioned, the receipt of the cash from the sale of the 30% of our brokerage, which is a significant amount, towards the end of the year. And also as we prepared for the launch of our East Point fund, that was an investment that was converted into cash at the end of the year, and it was redeployed very early on in January. So there's also a couple of one-off factors pushing that ratio down.

Thank you, Robert and Elsy. The next question is from [ Gordon ] from [ FNTB ]. Do UAF has to follow the Chinese government guidance to lower the lending rate to about 15%?

I think the lending rate cap limit by the court has been removed or unsubstantiated. If you read through the provisions from the Chinese government, I think that was a court rule, that was a suggestion, but there has been no implementation. I think also the Guangdong province FSA has also issued their opinion about whether that is a straight rule or a straight cap for all the micro lenders. So in our view, at the moment, we do not think that it's applicable for all the micro lenders or the -- on the online platforms, that straight cap of the 4x LPR.

Thank you. As time is running short, we will now have the final question. All right. I think the management has answered most of the questions. Thanks for the management team for taking their time to present this morning. While the management team had made an effort to respond to questions received, due to the time constraint, if you have any additional questions that haven't been answered, please contact Ms. Alison Yeung, Vice President, Investor Relations of Sun Hung Kai & Co. Limited or the PR agency, Hill+Knowlton Strategies. The contact information is on the last line of the stack. Please get in touch with us. We will be happy to follow up. This concludes the investor presentation. Thank you, everyone, for tuning in today.

Goodbye.