Sun Hung Kai Properties Limited (16) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the annual results analyst briefing. Before we dive in, I'd like to take a moment to wish you all of you a very happy metastatic in advance. And as usual, we will start with the group's financial review please note that all the numbers are in Hong Kong dollars unless stated otherwise. For the year ended June 2026 the group's underlying profit was $22.9 billion, year-on-year increase of the annual results. And this growth mainly in higher profits from property development in Hong Kong and lower finance costs. The group's leasing and other recurring income remained resilient during the year. After factoring in net effect of realized value gains from the sale of investment properties and a net revaluation profit on the investment properties. The reported profit came in at $21.4 billion, an increase of 11.1% year-on-year. The underlying earnings per share was $7.89 while reported earnings per share was $7.39. As for dividends, the board has recommended a final dividend of $2.93 per share. an increase of 4.6% from $2.80 last year. Together with interim dividend of $0.98, total dividend per share for the full year will be $391 -- to break down the profit by segment. The profit for property development was about $8.3 billion, largely stable year-on-year. increased contribution from Hong Kong offset declines from the Mainland. For Property rental, the group's net rental income increased slightly by 1% at around $18.6 billion which includes a 1% decrease in Hong Kong and a 6% increase on the Mainland. Hotel business saw an operating profit of $728 million. an increase from the $615 million in the last financial year. Profit from our other businesses came in at about $4.6 billion. Reflecting a 6.5% decrease year-on-year. Altogether, this brings the group's total operating profit for this financial year to $32.2 billion. which remains stable year-on-year. Turning to our financial position. As of 30th June 2026, the group's net debt stood 7.6 billion. Gearing ratio improved to 10.7% from 13.5% in December last year. Interest cover for the period came in at 8.5x compared with 6x a year ago. The group always upholds prudent financial management. Net debt and net gearing ratio has declined further since the peak in December 2023. With a strong financial position, the group is well positioned to capture land acquisition opportunities in Hong Kong. The group also remains our top rates real estate company in Hong Kong. Due to lower debt and cost of borrowing, the group's net finance costs have gone down by 33% year-on-year. The group's debt mix is outlined in the table we have also achieved a balanced debt maturity profile. Moving on to our Hong Kong Land Bank. As of the end of June 2026, -- the group's total land bank in Hong Kong was about 56.4 million square feet of attributable GFA. The pie chart shows a breakdown of our completed properties and those under development. During the year, the group added 3 sites to land bank through various channels. They are shown in the table. After the financial year ended the group was awarded the tender for Tin-16station package 2 property development just last week. This package 2 will provide over 5,500 units to be developed and sell in places in an orderly manner located in a mature community in Chunmun South, the project comes with a podium Mall and over excellent transport links. Let's turn to the property development business in Hong Kong. During the year, the group recognized profit from property development reached $4.6 billion in Hong Kong. -- a significant 44% increase year-on-year. Margins started to improve since the second half of FY 2026, driving the full year level to 1% -- when we include the underlying profit from the sale of Dynetics and Susan Peak, margin was a higher 16%, and we expect the book sales margin to improve gradually. About $22.8 billion of contracted sales has yet to be recognized. That includes around $21 billion to be recognized in FY 2027. During the year, the Hong Kong residential market continues to recover, primary market transactions were active. The group achieved contracted sales of about $38.1 billion in Hong Kong. Major projects contributing to the sales are shown in the table here. We will launch a diverse mix of projects appeal to potential buyers. Major projects to be launched in the next 10 months are shown on the map. The next section is our Hong Kong rental portfolio. During the year, there was a modest increase in the group's gross rental income. Overall average occupancy remained stable at around 92%. High occupancy rates and new contributions support office rental, retail portfolio held firm Rental rates and occupancy increased for residential leasing. Our Hong Kong retail portfolio achieved an increase in tenant sales. Occupancy reached 95%. The group carries out several strategies to strengthen our performance may are listed on this slide. The group also adapts quickly to market trends and keep changing the tenant mix. Tenant sales increased, thanks to strong demand for jewelry and watches as inbound rim continue to grow, our most interest area outperformed in the portfolio we enhanced customer loyalty through the program the points. Overall member spending increased by 27% year-on-year. The growth in VIP member spending was even stronger to facility drivers, the group will continue to install more EV fast chargers in these properties. For our office portfolio in Hong Kong, overall occupancy remained stable at 90%. Both IFC and ICC achieved high occupancy, thanks to new leases from big companies and in-house expansion. Even so, the recovery in office market remains uneven with some districts outperforming the overall market. International Gateway Center IGC, is our latest landmark in West Harlan. 2 pairs of office towers provide super-grade A office space. The towers over grade air plus rail transport length, smart technologies and high-grade standards. The Podium Mall stage IGC is going to open in phases from late 2026. Initially, the more we provide restaurants and shops for all these tenants high-speed rail passengers as well as West Talon visitors. But we have more than IGC and West Talon. Our many projects help to make the district a well-class hub. Art Square tows project, ASC, is under development in the West Holland cultural district. Together with IGC, this new project will join the ICC 2 luxury hotels and more to form a commercial cluster sending 8 million square feet. They complement each other and create great synergies to strengthening our recurring income, we will focus on ramping up occupancy for new projects. They include IGC in West along, the angle in Hunan and Gilenya in Tai tech. Many projects are on the way, including the more stage IGC and ASC in West Conlon. Turning to our property business on the Chinese mainland. As of the end of June 2026, the group's total land bank on the Mainland was 64.7 million square feet in terms of attributable GFA. Again, the pie charts break down our completed properties and properties under development. Moving on to property development business on the Mainland. During the year, the group recognized property sales on the mainland increased to about $10 billion due to higher sales volume. Operating profit was $3.7 billion. Over the next 10 months, the group will launch new residential projects across different cities, about $0.8 billion of contracted sales have yet to be recognized. All of them are expected to be recognized in FY 2027. Moving on to our rental business on the Mainland. During the year, the group's gross rental income from the Mainland rental portfolio increased 5.2% to about $6.5 billion. In RMB terms, it went up 1.5% to RMB 5.6 billion, an increase from retail portfolio offset a decrease in office rental. On the Mainland, our integrated projects with great transport assets provide dynamic commercial space. The retail and office component comments each other and create synergies. At our Landmark ITC project in Shanghai, August TaoBwas completed during the year. It has attracted keen interest from major companies. ITC mall will open in phases from the second half of 2026, starting with the floor connect to Metro station. Hotel and Shanghai ITC held its grand opening in March 2026 the hotel is ramping up its occupancy. The spending portfolio is expected to bring rental income for the group. In FY 2026, the group increased it to fully own the IGC Mall in Guangzhou and Konacranzhou Hotel, bringing additional income. Major projects are in the pipeline. CatCentral Guangzhou South aumo in Guangzhou will open by end of 2026. Another new mall in Hangzhong IFC will open in phases from the second quarter of 2027 let's turn to our hotel business. During the year, revenue from the hotel portfolio increased 4% year-on-year to $5.5 billion. Operating profit increased 18% year-on-year to $728 million. Luxury hotels in Hong Kong outperformed at the rebranded the Royal Garden Callon is renovations will be completed soon. On the Mainland, the risk Halton Shanghai Pudong achieved record high room rates. Moving on to sustainability. We remain committed to ESG. Please refer to this slide in the appendix for more details. Next, I will summarize the market and business prospects. In Hong Kong, trade and domestic demand will drive steady economic growth. incoming talent and executives will support housing demand. While the city's superconductor role will help support office demand. On the Mainland, -- we expect strong exports and policy measures to support resilient economic growth. Measures for improving quality of homes will foster healthy development of the housing markets. As for the group's business prospects, with our strong financial position, we can replenish the Hong Kong land bank when opportunities arise. We will maintain prudent financial management, as always. On property development, with our trusted brand, we will drive sales through quality and innovation. With a strong launch pipeline in place, -- we will continue to roll out new residential projects, catering to diverse buyer segments. On property investment, we will adopt proactive strategies to upgrade our existing properties and aim for high occupancy. New projects like IGC and West Kowloon are expected to generate rental income gradually. I will end this presentation by highlighting our quote from the Chairman's statement. The group will continue to invest in the city's future. Through building landmark projects, that foster both economic advancement and social progress. By Hanting technologies to enhance productivity and competitiveness, the group will deliver quality properties. -- that are modern and customer-centric, meeting the evolving needs of residents and talents. -- guided by its time passed strategies and long-term vision, -- the group will continue to strive for sustainable long-term growth while contributing to further development of the city, it proudly calls home. This is the end of my presentation. Thank you.

Thank you for joining the greeting again. Let me introduce the panel to you. Starting from your left, Mr. [ Henry Wang ], Member of the Executive Committee, Mr. KW Lo, member of the Executive Committee; Mr. Allen Fung, Executive Director; Mr. Christopher Kwok, Executive Director. Mr. Victor Lui, Deputy Managing Director; Mr. Raymond Kwok, Chairman and Managing Director; Mr. Mike Wong, Deputy Managing Director. Mr. Adam Kwok, Executive Director; Mr. [ Eric Chang ], Executive Director; Mr. Frederick Li, Group Chief Accountant. May I now invite our Chairman and Managing Director; Mr. Raymond Kwok to share the key message of today's briefing. Mr. Kwok please.

Good afternoon. Ladies and gentlemen, thank you for joining today's post results briefing. Before we go into the Q&A session, let me highlight some of our key developments. Although the global economic environment remained volatile and uncertain, the group continued to achieve business growth for the year under review. We achieved strong contracted sales in Hong Kong of about $38 billion in attributable terms. Over the next 10 months, we're going to launch more new projects, providing mainly small to medium-sized units. They include a new phase of CRC and new projects in Tongxing, Tiwai to North and CET1 in Chapin. As you already know, we are excited about our successful bid last week for the Timon A16 Station Package 2 property development project. This large-scale residential project is next to a future MTR station, making it 1 of the few new railway topside projects. located in a very mature community. Together with the package 1 project we won late last year, we are confident that we will build another landmark residential cluster offering comprehensive amenities and exceptional transport connectivity in Hong Kong. With our strong financial position, we will continue to replenish our land bank when good opportunities arise. Meanwhile, the group is moving forward with 8 projects in the Northern metropolis, which will provide some 10,000 U.S. Central units in essential, commercial and transport amenities. We shall continue to support this strategic development, closely monitor any updates and explore potential opportunities. On property investment, we are furthering the transformation of West Kowloon into unique hub of financial services, wealth and asset management, organ culture retail, leisure and entertainment in Hong Kong. Our IGC office towers are top to high-speed rail station were completed during the year. we've handed over 1 tower to our tenant UPS earlier this year, a number of renowned insurance companies and multinational corporations, including AXA have also committed to leasing space in IGC. The Podium Mall at ITC has been named Stage ITC, and we will open in phases starting from the end of this year. The Art square towers next to music will be completed in 2027. As part of its continued investment into the West Couling commercial cluster -- we also plan to upgrade and renovate 2 luxury hotels, top can station. These new projects are joining ICC, our 2 luxury hotels and the shopping mall to form a commercial cluster of around 8 million square feet with fewer new supply of super Grade A offices in Hong Kong over the next few years, we expect our ITC and the Artisan Square towers will be able to capture tenants of demand for the upgrade and future expansion. For our retail portfolios in Hong Kong, tenant sales went up and the malls maintained high occupancy. We replanted a mall in Callon East and named it the angle shops are opening gradually. Our loyalty program, the point achieved a strong growth in terms of member spending. The growth in spending was even stronger for the VIP program, the point gold. For our Mainland properties, the group achieved attributable contracted sales of about $2.2 billion. Tenant sales at major malls grew steadily. In Shanghai, our ITC mall will open in phases from the second half of 2026. The new ITC Tower B is the tallest building in Puxi. This office landmark has started kicking in tenants. In Guangzhou, our group increased is titin the IGC Mall and Conrad Guangzhao Hotel at inhaler to 100%. We will continue to ride on their prime locations and mature operations to further enhance their business performance and overall asset value. Looking ahead, the group has full confidence in the long-term prospects of the nation in Hong Kong. Under the national 15th 5-year plan, Hong Kong will further strengthen its role as an international financial center. -- as well as its role as a superconductor and a super value adder. And Hong Kong is going to announce its first 5-year plan soon, which we serve as a strategic book paint for the cities comic development we will capitalize on these opportunities and continue to develop landmark projects. providing a modern and user-centric properties and services that not only for the economic advancement, but also build a better community for Hong Kong thank you. SP1

[Operator Instructions] Now lets have the first question, please the gentleman on your left side.

.This is Karl Chan from JPMorgan. First of all, I very much look forward to seeing our new office in at Square next year. Okay. So I have 4 questions. The first 1 is about the Hong Kong residential market. Just curious, right, because we have seen a very good year home prices have been up by 12%, 30% year-to-date, but we do see more potential overhangs or headwinds in the second half. For example, the U.S. interest rate is still quite uncertain whether there may be a hike -- and also, in Mainland China, there could be a bit more tightening in the coarse border investment control. Just curious in this context for Songa -- how should we consider the pricing strategy? Would we consider doing a bit more price adjustment to stimulate sales? And especially for Qutong project, how would this affect our strategy in to -- and also just generally, what's our general outlook for the Hong Kong home price and volume for this year and maybe next year as well? So that's my first question on the Hong Kong residential market. The second question is about Hong Kong DP concrete sales. Just curious, after existing our target this year, what's our latest Hong Kong DP contract sales target in the next financial year and for the long term, what would be the reasonable long-term normalized sales annual sales level in your opinion? So that would be my second question on the third question is about margin. So I think our investors are really glad to see that we see a bit more improvement in PDP margin. Just curious, what's our guidance for the next financial year and maybe for the next few years as well. And because we all remember that in the good old days, we used to have more than 30% margin, right? Just curious, do you think a return to more than 30% margin is realistic in the near term or medium term? So that would be my third question on margin. And my fourth question my final question is about capital allocation. So what's our latest guidance on dividend -- and would management consider revisiting the dividend policy. For example, would you consider shifting to maybe based on rental income or maybe just like for some other companies, they just adopt a progressive absolute DPS. So would that be something management may consider changing in the near future. And finally, do we have any plans to issue new shares, convertible bonds, warrants, to optimize the capital structure in the near term. So that would be my 4 questions.

Yes, I've answered the first 3 questions regarding the market. The Hong Kong, the central market remaining strong momentum in the first half of this year. I think it's quite natural to see that our transaction module in recent months. But when we look back the history of Hong Kong, each party cycles last for a couple of years, and we are only at the very initial stage of recovery and back by the influx of talents and students we have also seen that a vibrant leasing demand even came earlier in this summer. Actually, our residential vans have exceeded the previous peak in and double trend continues, this will induce more the investor on banked and also renters becoming home buyers. As the demand for retential commendation sustained and notably, the inventory for sale among developers are also shopping that will support the pricing of new projects. I would expect more volume in the coming months due to a couple of new projects. So overall, we would expect that market would continue to perform solidly for the rest of the year and the like. Regarding the tightening of the capital outflows, I think it only hinder market sentiment a bit and won't have been the significant impact in the long run. As we all know that for mass project, most of the purchases belong to local end users and upgrades. For the luxury sector, especially the top tier segment, -- if the capital are from the main managers, those capitals have been positioned in Hong Kong for quite long and we even set up local company here. Example, have seen that we have a couple of transactions in Victoria Harbour and Poland and Harbor. If those capital from the main lenders, they are actually becoming Hong Kong Peminvesten already. So overall, as long as Hong Kong remain attractive as an international financial center and wealth management sector. And together with its with the load regime and very limited supply of high-quality development. I think our markets can sustain in a similar strong momentum in the longer run -- on our sales plan, we have a very successful launch of Ranpak in Chile earlier this year, followed by Garden Regency, which is also very well received. In the coming 10 months, we have a couple of projects. Lane, CFC Phase IIs in this month and also the only project Phase Ia lets to mall at the end of the year. In the first quarter of next year, it would be our Taiwan Pesenti project and also the KuthaseI -- in second quarter, it would be our silent project is to the MTR station and also the Tonsan project, Phase Ib. Apart from this, we may also know that we shall continue to dispose our luxury units like cleans and harbor and also Victoria Harbour in the low coastal. You may also notice that we have created a lot of transaction on premium price of the area. -- we have achieved total sales of $38 billion in last financial year, which is exceeding our target. And for this year, we are setting our target at $33 billion taking into consideration of some uncertainties of B-cell pools. Certainly, we hope we can get all our sales content earlier so that we can put more revenues on sales. On the margin, I think currently, under the current market condition, I think a 30% price margin may not be real estate as low land sales have been very, very competitive. But overall, as I said, for March project, we have we have like Ceras and Tongon project, which we can aim for a quicker as a turnover. And for luxury project, we have Kulun Harbor and Victoria Harbor. Overall, I think we can achieve good and reasonable margins in the long run. And yes, the last question on Koton, we are going to launch the first phase of the Guten project mix to the season in early next year. Our project is occupying the most permanent location among other peers as being closer to MTR station and also with public transport interchange below. Our problem is we also have a sizable commercial space which provide a very comprehensive amenity, different amenities and also via lifestyle for all our buyers. So we are very confident on the future launch of the project.

For the residential sales market in the Mainland, Adam, do you like to comment on the main residential market, yes. .

I think overall, in the mainland, I think you all are aware that the government has been coming out with more and more supportive policies. -- for good homes hoppy to stabilize the market. On top, there's also use of NPF, the China equipment or sera that they could use and get cheap mortgages and so on. And also there's a relaxation of all the price restrictions basically and all the sales restrictions. Of course, there's a new rule that we can talk about later in August '28. But I think overall, these since the second quarter, we've seen a strong recovery in -- especially in Tier 1 cities and strong developers. And I think that flight to quality will just continue with buyers gravitating towards reputable and financially strong developers and also in prime locations. Fortunate for us, we are we have been our projects are mostly in Tier 1 cities. In the next 10 months, Victor and the team will launch a few premium projects and 1 is after the success of the clean of Hangzhou, including the residents and including West service apartments, including East on the East side. We'll be launching a brand-new service office and is already selling and it's quite well. We'll also hopefully subject to government presales, we'll be able to launch License Open, which have sold very, very well in previous phases. Of course, Shanghai Arch have so very well. We've launched some houses. And the new projects we'll launch is Jovo town and Chengdu. And then obviously, our focus is also remaining inventory especially in Guangzhou and Cochin. So we have a strong pipeline coming up, and a lot of that is in the Tier 1 cities.

On your fourth question about dividend policy, has always been our policy to pay 50% 40% to 50% of our earnings per share with rising earnings, we should be paying more dividend if we continue with the dividend policy of 40% to 50% in any case, I think, has been our policy, and we need we retained earnings to so that we can always invest in a timely way when the opportunities arise. And on the issue of new shares of warrants, there's no plan at all because I think our gearing is only 10% of equity. So I think we are very comfortable at this stage here. Thank you. .

May I have the next question, please? The gentlemen in the gray blazer.

Thank you, management. This is Mark Leung from UBS. I've got 4 questions. I think the first question is regarding to our upcoming new office, moving to the IGC next month. So first of all, first question is really related to West Care. So what is the latest leasing and rent update for IGC and Acqua and what is our expected office contribution for rental income in FY and the second and third question I would combine. What is the rental reversion outlook and tenant sales for Hong Kong office and retail, maybe break down by the types of assets and location as well. . And lastly, the question is about on the capital recycling. So are you planning to acquire any retail asset, for example, MTRC is planning to sell maybe the city link or popcorn -- are we interested in buying that? And also for the dynastic court, are we planning to further divest any IP in Hong Kong or maybe in Mainland China?

Well, there are many questions asked. Maybe KW. Can you answer the question on ITC Yes, Chairman. I'll try to answer the first question about West Carlo IGC. A very warm welcome to you moving into your very exciting home resaled. No other developments in Hong Kong matches in IC and Artur in terms of the unique combination of the gateway connectivity, obviously, train connections to both locally, regionally and also to the international market. And because of the size, because of the floor plate and the footprint is very scalable, very high-quality grade A office supply over there. And also the entire ebehood, in fact, is the next-generation workplace with flexibility and also the amenities, the greens, outdoor and a lot of things that we are still working on. And perhaps lastly is the industry-leading sustainability. So we got all the accreditations that very discerning end users. I'm sure, including UBS, they are looking for, they are all there. So in short, that will make West Callon, ASC, IGC, the clear choice for corporations that simply demand the best. So far, tenant's commitment from the financial and wealth management sector has already taken place and is going up -- and also, we have banks, asset management companies, fund insurance company, Mr. Chairman mentioned Xand maybe to name a few more, AIA, SunLife, FWD and so on, they have already committed coming into the project. And -- given the scale of IRD IGC project, we believe for occupancy will be achieved through a sale approach. We were getting there. While FY '27 will mark the initial revenue base, we expect a steady and meaningful ramp up in subsequent years. Now turning to AST, it's on track for completion in 2027. With anchor tenant Morgan is committing or is real committed to 250,000 square feet in that particular project. And that represents 37% of the office to office and this, without a doubt, is a strong world of confidence in the ASC project.Maybe, Eric, can you...

Some colors on how much in GC Yes. And then maybe, Henry, later, you'll respond to the question about ITC more the stage. I think the more important point to notice because everyone is talking IBC is good quality and a thing UBS and JPMorgan can take of this day. I'm sure that you have statutes pictation and also our quality I think the more to the point is I think mentioned by our Chairman PVCs actually, the Westcon is going to be a very important area, not sort of replacing Central but because of the connection to the Big Bay area. So it's a unique position for example. I think the reason why all these insurance companies are taking offices there because I mean now they disclaim the times are coming from bigger big areas from Guangdong and everywhere because with our unique connection to China, even to Chansin 3-hours -- so also, I think you possibly noticed we Sanaactually own over 7 million square feet of offices in that area with 2 very prestigious hotels. And what we're doing to doing the next phase is actually connecting all this our previous portfolios together, specially and also theoretically to -- we are actually building AI of management center in IGC and test center, apart from managing ITC. We will also manage ICC and also the portfolio we sort of in desconthat will be sort of like a regional management center, which not only will make our building more sustainable, more green. And also, it will help our tenants to connect and use each other facilities, which possibly will be a first in Hong Kong. So we -- actually, we are in the process of building that and then we will possibly be completed by the end of this year, then we will have a big announcement. And then what we are doing in West Cardona how we're going forward and our vision of building not the mix central and other central, which are probably serving different types of plants.

Eric mentioned that IPC is a very unique project in Hong Kong. You cannot see any other comparables actually. It's a day rate collecting to the Hong Kong Mainland and well, he's so sitting on the top of the high-speed chain ization convenient access to the full online as well. is further enhanced by 1.5 kilometers, what we call the Skywalk the collecting the project to the water funds and sending committees. Was 1 of the more. Is scheduled to be open at the end of this year. And the reason program is well in check. I'm happy to mention that almost all the space in Phase 1 mall is really late now. so that in the first phase, it will provide some victories and other retail options to our office tenants and rise. -- to open -- in addition, in the pace we also opened the pit of organ for so that it further facilitate visits at 2 and from the high-speed chain station and malls as well. in more I think more fashion, lifestyle and TeamMate coming to Phase I, we niche targeted to open in the late 2027 as well? And also your question on Dynetics, for Talicia, we still have a number of premium units for sale and currently, we don't have any plan to dispose other IP. However, we keep our portfolio in an active review in line with the market condition. So would you like to comment on the retail.

Yes. On the retail, on the ventevrsion for the retail portfolio for last financial year, we've seen that the pressure on inventory reversion has moderated and we expect the trend to continue to improve in the coming year. Riding on the fact that the retail sales at malls have outperformed the market, especially in the last 6 months, with jury and FNB trades showing particularly strong performances, while occupancy also remains high. I think in the coming year, we are cautiously positive because in the Hong Kong market will be supported by mode survivals and such of more main tenants who are planning to stay longer term. in Hong Kong. So we expect that in the coming year, sales will continue to improve and rent will continue to recover beta.

Maybe you can comment on the reversal aspect office market Yes. .

Right now yes the grade A office market has seen meaningful improvement, particularly in core areas, including Weston and central. And our office portfolio continued to benefit from this gradual recovery trend. And for example, potent in trending upwards continuously. And occupancy is now very close to 100%, if not 100. And ICC maintains a very strong tenant base of global investment banks and financial institutions with stable rents and robust occupancy of now at around 92%. And we remain positive on the 12-month outlook, the market definitely has been improving, and we believe it will continue to do so. Current momentum is encouraging. And while positive rental reversion will take time to materialize, we expect it to gain traction as the recovery broadens across more sectors is not just restricted to the financial services sector, which are very hot at the moment. But certainly, we have also seen recovery in other reps manufacturing and other business sectors across the board. So we believe this will continue and that will improve the overall market situation in the coming months. So that's about the Hong Kong office market.