CK Asset Holdings Limited (1113) Earnings Call Transcript

Good afternoon. My name is Gerald Ma. To my right, Mr. Simon Man and Mr. Yue Seng Chiu, two of my fellow ExCo members. We are your presenters for the CK Asset Holdings Limited 2026 Interim results. We will also be taking on the questions, your submitted questions after the presentation. So let's get right to it. Interim results highlights. Underlying profit up 5% and the dividend per share increased to HKD 0.41 per share. If you take the HKD 6.6 billion of underlying profit or HKD 1.90 per share, setting off against various adjusting items such as change in fair values in our REITs, change in fair values in investment properties, reduction in value of an associate and disposal gains of UKPN and UK Rail will give you the underlying -- or give you the profit attributable to shareholders of HKD 8.7 billion or HKD 2.48, up 37.8%. Dividend per share, up 5.1%, corresponding to the increase in underlying profit and net book value up almost 1% to HKD 114.31. Principal activities analysis. Property sales revenue gone up 3x to HKD 21.6 billion, but profit contribution was only HKD 765 million, more on that later. If you look at all the other divisions, property rental, hotel and service suite operation, property and project management, pub operation, infrastructure and utility asset operations, revenues were all up and profit contribution were all up with the exception of the infrastructure and utility asset operation division, mainly because of the disposal of the 2 joint ventures that we had. Total revenue was HKD 54.5 billion and profit contribution, HKD 9.5 billion. 60% of our revenue or HKD 32.85 billion was recurrent in the first half and 92% of profit contribution or HKD 8.7 billion is also deemed recurring in the first half. Profit contribution by region. Hong Kong was 35%; the U.K., almost 34%; Germany, 9%, Australia and Canada and the U.S., 8%, respectively; and other European countries, mainly our operations under [ Eastern ], HKD 453 million, accounting for almost 5% and the Mainland was 1.6%. So very well diversified. If we look at the individual divisions, property sales, again, revenue HKD 21.6 billion, profit contribution, HKD 765 million. The booking of Blue Coast I and II lifted revenue to over HKD 21 billion. Overall development margin was still quite low, 3.5% in the first half. If you look at the different regional contribution, Hong Kong gave us HKD 626 million of profit contribution, margin was 3%. The Mainland was somewhat irrelevant in the first half, very few bookings and very few projects sold. It only HKD 48 million of contribution. The U.K., namely Chelsea Waterfront had HKD 300 million of revenue and almost HKD 100 million of contribution. Margin was healthy, 32.3%. And others is really an agricultural land, mainly a piece of agricultural land in Queensland, Australia, which we sold at a slight negative margin. Major contribution or contributors from the Blue Coast, HKD 332 million. Borrett Road Phase 1 gave us HKD 130 million and Chelsea Waterfront just over HKD 100 million. We still have over HKD 6 billion of contracted sales not yet recognized, of which a little bit over half is scheduled for recognition in 2026. Turning to the rental division. The performance in the first half was quite resilient, HKD 3 billion of revenue, profit contribution, HKD 2.4 billion and margin was 78.5%. All 3 metrics were -- went up a little bit. If you look at the revenue by use of property, retail, we still had a bit of negative reversion was down 4.8%. Office because of the contribution of CKC 2 went up 4.8%. And industrial buildings had a pullback as well, but more than compensated by our contribution from the social infrastructure sector, up 6.1% to HKD 712 million. Others are mainly the residential and car parks contribution or revenue or contribution. Major contributors from Cheung Kong Center, HKD 464 million; Hutchison Logistics Center, HKD 308 million; and the Whampoa Retail Complex, HKD 299 million. We have a total of 24 million square feet of investment properties. We recorded a decrease in fair value of investment properties of HKD 2.1 billion. This is before tax and before MI. If you look at the change in fair value, net of tax and MI, the numbers on your right -- on the right is about HKD 1.5 billion. And the bulk of that came from a write-down of Upper West Shanghai, both the office and commercial. So altogether, that's over HKD 900 million. Hotel and service suite operation. We had a solid contribution from this sector in the first half. Room rate had a decent positive movement. The daily hotels went up by about 8% and service suites went up by about 4% in terms of average room rate. Occupancy was very steady, 88% for hotel rooms and 90% for service suites, giving us a good revenue increase of 6.3%, profit contribution went up by 7.9% and margin also improved slightly. Property and project management, 246 million square feet under management, very steady revenue and profit contribution and margins always healthy 40-plus percent. Pub operation, we have a total of roughly 2,500 pubs, about 1,500 of them are what we call managed pubs under Pub Company. About 1,000 of them are under the Pub Partners division, what we call tenanted pubs or franchise pubs. And then we have 2 breweries, one in Scotland, one in England, producing and distributing our beers. And on the back of very -- still very tough macro conditions in the U.K., the division actually delivered a decent performance in the first half, mainly because we had a one-off brand disposal. We sold a brand called Old Speckled Hen to a Spanish brewer, which gave us a bit of a boost as well as a few asset disposal. So the profit contribution went up 14.3% compared to the first half of 2025. So the next few pages, I will defer to my colleague, Yue Seng.

Thank you, Gerald. We have delivered a very solid performance across our infrastructure business. The profit contribution, it's essentially flat to 2025, and it comes in at about HKD 4.6 billion. This is despite we only have 4 months of contribution from UK Power Networks, which was disposed during the year. And also bearing in mind that we have not captured in this number the interest income that we earned on the proceeds that we got from UKPN Limited and also from Eversholt disposal. Overall, I think most of our businesses actually has performed very well and as planned, benefiting really from the positive inflation environment and also, we have positive foreign exchange movement in our favor also during this period. Talking a little bit more on the disposal of Eversholt UK Rails and also UK Power Networks. Overdone, obviously, in the first half. For Eversholt, which is our rail leasing business in the U.K., we sold the whole business for GBP 1.1 billion, of which our share is 20%, and that resulted in a gain of HKD 826 million from the transaction. And for UK Power Networks, as you all know, I mean, it's a major transaction for the group. The overall equity value that we disposed was close to GBP 11 billion, of which GBP 2.1 billion it's CKA share. That result in our profit of disposal from the transaction, HKD 8.9 -- almost HKD 9 billion. No really further -- any further update on other divestment at this point. We obviously did both of these deals to realize shareholder value from these investments and also bring us proceeds that we're looking to invest, obviously subject to meeting our return requirements.

So Simon will go through the next 2 pages for us.

Okay. At 30th of June 2026, the group's interest in the 3 listed real estate investment trust remain about the same. 35.1% in the Hui Xian REIT, which own and manage 11.8 million square feet of hotel and service suites, office and retail properties on the Mainland. 25.5% in the Fortune REIT, which own and managed 3 million square feet of retail properties in Hong Kong and Singapore. 17.2% in the Prosperity REIT, which own and manage 1.3 million square feet of office, retail and industrial properties in Hong Kong. Hui Xian REIT is an associate, and the group share a net rental of HKD 96 million, net rental [ power ] of HKD 96 million for the first half in 2026. It was HKD 77 million for the same period last year and received a distribution of HKD 7 million this year, whereas only HKD 3 million in the first half of 2025. And distribution received from Fortune REIT and Prosperity REIT amounted to HKD 104 million this year, which was HKD 107 million in the first half 2025 and were all recognized as investment income. For gearing and maturity profile, at the interim period end date, the group's bank and other loans balance amounted to HKD 43.8 billion, a decrease of HKD 7.6 billion when compared with the balance at the year-end date of 2025. And maturity was HKD 10.1 billion repayable within 1 year, HKD 29 billion within 2 to 5 years and HKD 4.7 billion beyond 5 years. Taking in account the group's bank balance and deposit of HKD 65.7 billion on hand, the group had a net cash position of HKD 21.9 billion. And we have credit rating from Moody's A2 stable and from Standard & Poor's A stable. The group has a total land bank of 125 million square feet. 63 million square feet was under development, of which 6 million square feet located in Hong Kong, 54 million square feet on the Mainland, 3 million square feet overseas. 24 million square feet was held for rental, of which 13 million was in Hong Kong and 6 million on the Mainland, 5 million overseas. 9 million square feet was held for hotel and service suite operation with 8 million square feet in Hong Kong and 1 million square feet on the Mainland. And 26 million square feet was held for pub operation in the United Kingdom. So overall, we have 27 million square feet of land bank in Hong Kong and 61 million square feet of land bank on the Mainland and 34 million square feet overseas, mainly in the United Kingdom.

So that's the formal presentation that we've done. Thank you, Simon and Yue Seng for helping out. So we now will begin our Q&A session. Again, the 3 of us will divide the work, and I know Sophia has been organizing the questions. Maybe Sophia, you ask the questions to 3 of us, and I will try to direct traffic if I'm not answering the questions myself.

Thank you very much, Gerald. So while I collect the question, may I start with the first one. How would you comment on your first half 2026 results?

So I guess, overall, we can say that the group is in a very strong position from a balance sheet perspective. However, macro trends and geopolitical developments are really becoming increasingly unpredictable. This really calls for caution in our approach to everything from how we manage our existing businesses to how we assess any and all new opportunities. It seems -- it really seems like abrupt changes in the macroeconomic environment and political environment. It's the only constant at the moment. And at times, -- personally, I would say at times, I do feel quite helpless. How can one plan for the future? How do we run our businesses and project forward? It's very, very difficult. So we will manage our privileged position very carefully while we continue to look for ways to enhance value for shareholders. Having said that, the underlying profit for the group increased by 5% year-over-year. It does highlight the resilience of our recurring income amidst the -- all the uncertainties that we see and demonstrates that our conservative and diversified approach is shielding us from excessive volatilities. But the focus is on maximizing the performance of all of our group businesses and cautiously move forward.

Okay. So I'll now start by asking a question on the Property Division. Given the group's net cash position, so what are your current thoughts on your preferred use of capital or choice of investments?

Yue Seng, maybe.

Sure. I think we -- first of all, I think having -- as Gerald mentioned in his previous answer, we have a privileged position of having that cash. But at the same time, I think there's a lot of uncertainty right now in the market. And I think we look at the cash and want to put it into good use and at the same time, maintain our financial and investment discipline. I think that's very, very important. I think we continue to look for investment with recurring income stream. I think that's investment mainly asset-heavy investments, long contracted cash flow, developed market and with a stable legal environment, that always has been our investment discipline. On top of it, I think opportunistically, we will try to proactively evaluate kind of opportunities in Hong Kong and Hong Kong properties, land bank in Hong Kong as well as in China. I think all being said, I think with the uncertainty in the overall environment, we just need to try to make sure the investment that we make meets our risk profile and also meets our return expectations.

Thanks, Yue Seng. I see the next few questions, if I may. The next 3 questions, maybe let Simon help me out a little bit. Go ahead, Sophia.

Okay. So going into the principal activities. So what is your view on Hong Kong's property market?

Well, we have seen a solid improvement in both volume and price for residential transaction in the first half of 2026. There is still good demand for high-end projects like the one at Borrett Road, which continues to set record price. While the market has been supported by strong local demand and purchases from the Mainland, the momentum may slow down if the price of oil continues to be volatile and the level of interest rates stays high or further increase. [Foreign Language]

Thank you, Mr. Man. Continuing on with questions on the Property Division. Your development profit has dropped by 57%, even though revenue almost doubled with development margins at 3.5%. How should we think about this? And what are your expectations on margins going forward?

For the first half year results, the overall development contribution and margin were impacted by the low margin of Blue Coast I and Blue Coast II, which were acquired at a high land cost. But projects like Borrett Road continue to give healthy margins. The margin for other projects under development may be less than what we previously anticipated if prices stay at the current levels.

Okay. So could you comment on your Mainland property sales activities?

The Mainland property market was still difficult in the first half. We have launched Regency Garden Phase 5B in the second quarter, and the market response was positive. Well, we will continue to promote our projects with incentives to encourage sales. Somehow it is still a purchasers' market. [Foreign Language]

Okay. Next question is a very interesting one. Do you have any comment on the potential impact on the property market from the recent announcements related to tax on offshore income from the Mainland?

Maybe I'll take on this one and the next one. I think at a high level, these rules and regulations have always been there. So it's not something new. The recent announcement, I think, really provided a very clear guidance on compliance. That's what I would say on that. The next question, please.