Good afternoon, everyone. A very warm welcome to The Wharf (Holdings) finals result briefing. I am Angela Ng from the IR team. You can download the PowerPoint presentation using the QR code displayed on the LED wall. Today, our management team includes Mr. Stephen Ng, Chairman and Managing Director, and Mr. Kevin Hui, Director and Company Secretary. We will first go through the PowerPoint presentation and then open the floor to the analyst for a Q&A session with the management. The theme for the presentation this year is Property Write-down Much Lower in 2025. Let's take a look at the results highlights. As the tagline suggested, the group's investment properties revaluation deficit and development properties impairment provisions were altogether HKD 3.5 billion, less than the previous year, resulting in an increase of HKD 3.3 billion in group profit.
Also, with lower DP provision, underlying net profit increased by HKD 1.3 billion during the year. Following the disposal of part of the long-term investment portfolio, the group turned to net cash by year-end. NAV per share was HKD 48.01, representing an increase of 7%. We remain focused on our core businesses, with over 60% of total assets are in premium properties across Hong Kong and Chinese mainland. Following the suspension of land acquisitions in Chinese mainland since 2019, we have strategically shifted capital to Hong Kong projects. Those projects are gradually bearing fruit. During the year, the group has launched One Plantation Road at The Peak and Victoria Voyage JV project in Kai Tak. The Peak project in Kowloon, 8 Lung Ting Lane, is preparing to launch. Meanwhile, the investment properties in Chinese mainland, hotels and logistic infrastructure continue to deliver solid recurring income.
This slide shows more details on our financial performance. During the year, mainland DP sales continued to contract, particularly for non-residential properties, which is the main reason for the drop in group revenue and operating profit. Underlying net profit increased by 47%, mainly driven by a significant reduction in mainland DP provisions and a decrease in borrowing costs. Contribution from Hong Kong DP increased, and that from logistic, the third largest contributor, also increased. However, these contributions were partially offset by a decline in mainland IP. Inclusive of a lower IP revaluation deficit, group profit restored to HKD 50 million. Dividend per share remained unchanged at HKD 0.40, representing a payout ratio of 30% of UMP. The group has been proactively managing its financial position, achieving a net cash position by year-end following the disposal of HKD 9.7 billion in equity investment.
Net cash was HKD 4.5 billion, if excluding the debt from Modern Terminals, which is non-recourse to the group. As the group strategically converted debt to renminbi in the past few years, average interest costs remain low at 2.5%. In the next few slides, we will walk through our business segments in the order of Hong Kong properties, mainland IP, mainland DP, hotels, and logistic infrastructure. In Hong Kong, the group has been capitalizing on the improving property market sentiment to initiate project launches during the year. At The Peak, following the penthouse at Mansfield Road with record high average price for apartments, One Plantation Road recorded its first transaction in December. House one was sold for HKD 558 million. Meanwhile, our 30%-owned JV project, Victoria Voyage, recorded total sales proceeds of HKD 2.8 billion after its launch in August.
Attributable Hong Kong DP revenue increased to HKD 1.1 billion and operating profit to HKD 287 million. As at the end of last year, our Hong Kong residential land bank amounted to 2.7 million square feet. Preparations are underway for the launch of 8 Lung Ting Lane, which is our peak project in Kowloon. Major projects under development include Mansfield Road project on the Peak and Kowloon Bay redevelopment project. Regarding the Mainland IP, retail sales in China rose, partly driven by the government-led trade-in programs and the promotional events. Despite intensified competition in both online and offline, our flagship malls, Chengdu IFS and Changsha IFS, continue to see solid occupancy of 97% and 99%, respectively, underpinned by critical mass and constant efforts on tenant mix and marketing. On the office side, the supply-demand imbalance worsened.
As a result, our Mainland IP slipped to HKD 4.4 billion and operating profit to HKD 2.9 billion.
Moving on to Mainland DP. Subsequent to suspension of land acquisitions, available stock has been depleting, resulting in lower contracted sales. As a result, revenue declined to HKD 1.4 billion and operating profit to HKD 208 million. Most residential inventory has been sold while office stocks remain slow moving. Impairment provisions were made accordingly. At year-end, our DP stock was 1.2 million square meters. Excuse me. Net book value amounted to HKD 15.9 billion. Moving on to hotel. Wharf Hotels currently operates 16 hotels under our own Niccolo, Maqo, and Marco brands, mainly in Hong Kong and Chinese Mainland. Park Hyatt Changsha is the group's only hotel with outsourced management. In Hong Kong, occupancy was supported by strong visitor growth, with room rates trend improving in the second half. However, in Chinese Mainland, despite the growth in domestic tourism, traveler spending pattern continued to pressure the performance.
Segment revenue increased by 6% to HKD 656 million, operating profit broke even. Turning to our logistics infrastructure. Realignment of major shipping alliances further pressured Hong Kong shipping volume. Meanwhile, ongoing global disputes are reshaping cargo flow, and we continue to monitor the evolving trends and the opportunities that may present. Modern Terminals throughput in Hong Kong declined mildly by 6%. Overall segment revenue slipped to HKD 2.1 billion and operating profit to HKD 278 million. I will go through our effort and performance in sustainability. Wharf (Holdings) maintains strong ESG ratings and green building certifications, including A-rating in MSCI ESG assessment, LEED Platinum, and BEAM Plus Platinum ratings. Last year, the group's near-term science-based targets were approved by SBTi, which marked an important milestone for our sustainability journey.
Sustainable financing made up 50% of financing as of December last year, while an accumulated green or sustainability-linked financing amounted to HKD 23.6 billion. More details on our ESG efforts could be found in the PowerPoint presentation. In the final part of the presentation, let's turn to the outlook. Global risk and disruption are significant and continue to accelerate. In this volatile environment, navigating instability and transformation becomes a primary challenge. Based on current observations, Hong Kong's property markets is regaining confidence while Chinese Mainland property market is still a concern. Looking ahead, the group will continue to leverage its core strength and prudent financial management to navigate ongoing headwinds and sustain stable performance. That concludes my presentation. We will now proceed to the Q&A section. Before we begin, just a quick housekeeping note for the analysts.
If you have any question, please raise your hand and our hotel staff will bring you a microphone. Kindly introduce yourself and the organization you represent before asking question, if I did not do so. You may feel free to ask no more than two questions each time. Now, may I invite Mr. Ng and Mr. Hui to come to the stage, please. Okay. I see the first question from Cindy.
Thanks. This is Cindy from Citi. I have two questions. The first is wanting to understand your view of the Hong Kong ultra-luxury home market. What's your projection of volume price trend this year, and how do you assess the impact from the higher stamp duty for the units above HKD 100 million? Second question is actually on your cash position and long-term investment. Last year, obviously very good return from stock investments. Looking into this year, how would you like to use this chunk of cash? Would you consider, say, looking for some new investments, doing a little bit more shareholder return, or maybe buying into some other stocks for future investment?
Given the stock market volatility and the geopolitical risk you mentioned, would you rather say happy to hold on to your net cash or even liquidate a little bit more of your long-term investment to just be super safe? Thank you.
Good, thank you. Ultra-luxury properties in Hong Kong. We're positive about the outlook for that market. Already we were beginning to see good interest from buyers in the second half of last year. What happened in the Middle East the last two weeks, we believe will drive more capital and people, both capital and people, eastwards from the Middle East. Both driving them back and on the other hand, retaining people who would otherwise consider going in the westerly direction. We are positive about that end of the market, and given that we have little or no debt pressure, we will not have to sell in a hurry. If we get the right price, we'll deal. If we don't, we won't. Now, I know this is Number 1 Plantation Road and a lot of the slides you saw earlier in Angela's presentation actually come from that property.
The number one house is the one which is at the front, at the lower tier. That's the one sold for HKD 600 million. HKD 560 million.
HKD 560 million, yeah.
HKD 560 million, HKD 91,000 per square foot. That sale was completed a week ago. The deal's done and completed. We expect to see more transactions later this year. We will release additional units from this property to the market. The two tiers, you see a lower tier and an upper tier. The lower tier there are 14 houses, and in the upper tier there's six houses. The upper tier houses are bigger. We've been getting indication of demand for the bigger houses. They are about 1,000 sq ft-1,005 sq ft bigger. Biggest being 7,002. If we can keep up the same kind of ASP per square foot, that would be good. Obviously the additional stamp duty is a factor. If all considered, we hope the positive factors will override the negative factors. Second question about capital management.
Yes, we took advantage of a good market last year to realize some profit, which did not go into the P&L, it went directly to reserves. We are not in a hurry to reinvest it, particularly given the turmoil in the financial markets. We consider the risk at the moment a little bit higher than we're prepared to take. In the meantime, we're parking it in basically very low-risk instruments. Let me call them instruments. We'd be in a position to either play offense or defense, depending on how the macro environment goes. Defense meaning still staying in low risk, and offense if it looks like there's improvement in certain sectors of the market. We believe we're in a good position to play our hand either way.
Thank you. May we have the next question from Karl Choi, Bank of America.
Two quick questions. First, furthering on the last question. When it comes to sort of businesses, given your comments about positive outlook for Hong Kong resi, I assume you wouldn't hesitate to put new capital to work in the Hong Kong DP side, or the turmoil may actually keep you on the sidelines. If so, would you consider going a little bit more mass market, or you actually stick to only just a very sort of premium positioning that you have enjoyed have been on the DP side? On the China IP side, just to want to drill down a little bit. You talked about still more oversupply. I think for Chengdu IFS, can you give us a little bit of update? I think if I'm not mistaken, one of your anchor tenants recently closed the store. Have you found a replacement?
If not, what's the strategy to backfill the space? Overall for sort of the rental income outlook in China, even though from a competitive positioning it's still challenging, we've seen some rebound in retail sales and whether you can actually see some stabilization in rental income as a result. Thanks.
Sure. Thank you. The property market is generally cyclical. You may recall what happened at the end of 2017. That was when we de-merged Wharf Real Estate Investment Company Limited. Shortly after that, we started to curtail our investment in mainland DP, and we started to put a lot more capital into Hong Kong DP. The time has come for us to get some return from our Hong Kong DP investment. That includes not only super luxury. The Kai Tak joint venture, for instance, it's a nice upper middle market project. It's a joint venture, and we started to realize some of that project last year. Hopefully, some more will follow this year.
If the right opportunity comes along, we would be prepared to invest in Hong Kong DP projects other than super luxury, because there are actually not that many super luxury new deals in the market. We can't just sit and wait forever. On the other hand, if there are no good opportunities, we're quite happy to continue to park the capital. Chengdu IFS. The anchor tenant space is being broken up into smaller units. It's being turned into arcade. We have already secured a number of tenants for some of the units. The conversion itself will take several months, so we still have a little bit more time to conclude the remaining leases. On reopening, we expect good occupancy of the previously occupied space post-arcade conversion.
While on the subject of Chengdu IFS, this may not be very public information yet, we have started to sell some of the apartments. In fact, we have achieved some sales shortly before Chinese New Year, now that people are beginning to come back to work after Chinese New Year, we're expected to sell some more of the residential units. At a good price, too. We're looking for different ways to recycle the capital. We don't have a very large unsold stock in residential, given that most of it was previously already sold, which is why we're releasing these apartments in Chengdu IFS. They are large apartments. Some of them are small currently, but we could make them bigger, so they'll be like 200 sq m apartments, and we're selling upwards of RMB 10 million per unit. Again, some more capital coming back.
Rental income.
Generally?
Mainland. Rental income.
Yeah. Well, generally, I think we'll see a flattish performance. We're beginning to see some recovery in the first two months of this year, it's too early to say whether that's sustainable. We're budgeting for flattish performance this year.
Thank you. Please raise your hands if you have any question. Praveen from Morgan Stanley.
Thank you. Hi, Mr. Ng. Let me ask some provocative question. Why is this company listed? This company doesn't provide dividend to the extent that other property companies do. It definitely is undervalued because it has so much cash, both in net cash position and the investment. The business fundamentals and performances have been relative to its peers, not as good. Whether it's logistics, whether it's China real estate, whether it's provisions. I think as a private company, it could extract more value out of it, so just wanted to get a thought. I have the second question on China net book value. I just wanted to clarify, is it China DP net book value of HKD 15.9 billion I saw in the presentation you had?
It is.
Yes.
I just wanted to get, if I were to sell it over the next I'm just throwing a number, three years, five years, doesn't matter. Would I really get HKD 15.9 billion out of this? Or the amount that we really add value to the shareholder would be a lot less? Thank you.
Good. Provocative. I agree with you. It's listed. Well, I agree with part of what you say. What I don't agree with is your comment about underperformance. Not entirely. If you look at mainland DP performance, you see many companies doing a lot worse than us, including some of our Hong Kong peers. You're obviously entitled to your view. We'll prove you wrong. The company's been listed for a long time. We have very loyal shareholders. Some of them are very loyal, and we know who they are. Dividend is not necessarily what they're looking for. Ideally, we'd be able to pay more, but we've made it a very transparent policy of paying 30% of our underlying net profit. In the past few years, our underlying net profit has been affected by the large write-downs. This year, the write-downs are significantly lower than before.
The write-downs reflect our view of what the DP assets are able to fetch in the marketplace. My answer to your question about whether we can get HKD 15.9 billion in the market if we were to sell them in the next three or four years, has to be yes. Otherwise, we'd be misleading shareholders. However, the question is whether or not we can sell all of it within the next three years. It's not price, it's liquidity. What remains in our portfolio, a large proportion of it is office. We have written the offices down to a low ASP. There may not be buyers for office, even if we were to write them down further. The issue is not price, the issue is liquidity. Now, the market may change, but at the moment, that is the view. What are the book sales?
I think the back side.
Net book value.
Net book value, yeah. We've covered that one.
Yeah.
Okay.
Okay.
Sorry. The fact that the write-downs have been declining, it reflects two things. A, the unsold stock has decreased in quantity and in value. B, we've been sufficiently, call it aggressive or conservative. If you look back at the last few years, we've written down probably close to HKD 20 billion, HKD 15 billion-HKD 20 billion, somewhere in that range. We've made big money in the past. Here I'd like to clarify one thing, too, to provide some perspective. We, as a company, started to invest in mainland properties about 30 years ago. Initially, it was a small amount. That was before the markets became big. Over the years, we have injected from Hong Kong into the mainland about HKD 120 billion of capital. You need to use equity to invest in the mainland. We can borrow for construction, but in terms of land, it needs to be equity.
Over the years, we have pretty much repatriated the entire invested capital in Hong Kong dollars. The currency has fluctuated during the 30 years, but what's important for this purpose is that whatever amount we remitted into the mainland has been fully repatriated or nearly fully repatriated. What is left currently in the mainland is profit. If we can realize a dollar from it, we make HKD 1 of profit. If we realize HKD 2, it's HKD 2 of profit. At least in terms of capital preservation, I think we've done reasonably well. The upside is the remaining assets, the IFSs, and I'm including the IP, the IFSs, the remaining DP stock, and so on and so forth, all of it
Thank you. Is there any more question from the front? Jeff from DBS.
I have a follow-up question on the office in China. This HKD 15.9 billion net book value. Can I assume they all are completed already, or you still have some under construction or just a land pending development? Are these office towers, if completed, currently for leasing? Are you generating some income from these office towers which has yet to be sold?
Yes. They are either already completed or substantially completed. The market is soft, there are instances where we don't put the final finishing touches to it yet. The bulk of the capital expenditure has been incurred, if that's the motivation of your question. In some cases, we don't finish some of these products, because if you finish it, you start paying tax. If you don't, or at least you don't put the finishing touches to it, you defer the start of the tax payment. The vast majority of the capital required has been incurred. If it is finished, where possible, we would lease it. Good case in point is Changsha IFS. We have offices in T1, and T1's been completed for five, six, seven years. Five, six? More than five years, before COVID. We have tenants in there.
They are generating a certain income to us to at least cover the running cost.
Thank you. May we have the question from Karl, Bank of America?
Yep. Two.
Hi. Two quick follow-up. First, regarding the Chengdu IFS apartments, can you remind us sort of how many units you have or in terms of square footages? Second is, if you can give us some question about if you actually sold more of your investment portfolio year- to- date, given the strong performance up until recently. Third is, given the strong capital position that the company is currently and you have a lot of DP sales proceeds coming back, would you consider actually some special dividend as you book some of these projects?
Okay. The Chengdu IFS apartment block has a total GFA of about 70,000 sq m. At the moment, there are over 300 apartments, some of them smaller. Our reading of the market is that the best product for that market are larger units, and that is why we will be combining the smaller units into larger units for sale. When all of that is done, the tower will include a total of 200 large units. We're not putting all of it on the market. We will continue to lease some of them, and depending on response from the sale, we will release more and more units into the market. Second question about the investment.
Yep.
Yes, we took advantage of the market and realized another HKD 2 billion of listed equities in the first two months of the year. We stopped. Depending on the market, we may do it again. There is no target or anything like that. Your suggestion, either question or suggestion about special dividend, it is noted. I will bring it to the board.
Thank you. The next question from Griffin, Citi.
Yeah. Griffin Chan from Citi. I'm interested on the logistic on infrastructure. There is a very obvious trend. Hong Kong is coming down, China is going up on your PBT. What is your view on the outlook of the logistic properties, especially for our business, first of all? Second question is on the other business. I think you consider other business more than property. It can be you've done it by yourself, or you just invest in some company that is like specially operating. What is your thought on the other business?
On other business, at the moment, our main expertise is properties, and that's what we will make our first priority. If there are other businesses for indirect investment, we would consider, but it would have to be something that we feel comfortable with. Coming back to the first question, the container terminals. The issue about terminal business in South China is oversupply. There's been a lot of new supply, both in Shenzhen and particularly in Guangzhou, in Nansha. Clearly, this area is now oversupplied, and we're competing with operators who are government-backed, either SOEs or some form of government subsidy. A good case in point is Nansha. Nansha's been rising very rapidly in the last few years, to the extent that Nansha is posing a serious threat to Shenzhen. Not only to Hong Kong, but to Shenzhen. Nansha has overtaken Hong Kong already, but it is threatening Shenzhen.
The way they do it is they throw capital at it. First of all, as you know, Nansha is located more than 100 km up the river. With all river estuaries, there's sediments. Sediments tend to make the draft unsuitable for the bigger and bigger vessels of today. Hong Kong is a natural port with deep water. Yantian is a natural port with deep water. But on the western side of Shenzhen, at the mouth of Pearl River, even our DaChan Bay, which we operate in Shenzhen, we're having to dredge the basin, and Shenzhen government has to dredge the channel that leads to our basin regularly. In the case of Guangzhou government has to dredge this 100 km long channel, and also the basin around the terminal area. It's a huge cost. That's the first subsidy to the terminal.
The second subsidy is Nansha offers an incentive for shipping companies to bring boxes to Nansha, in effect, buying market share. That's not something we can do. That's why Hong Kong has lost a great deal of throughput. Having said that, Hong Kong still has just under 10 million TEUs of annual throughput, which is no small number. It's still one of the largest outside of mainland China. Outside of mainland China, we're probably within top five, or certainly within top five. It's a business which is important for Hong Kong, given the employment and so on and so forth. What we need is more support from the Hong Kong government and the central government to make the Hong Kong port still viable.
In the meantime, what we have been doing ourselves is to try everything we can to try and bring back some of the cargo that has been diverted. We were actually having some success. We signed up some new strings coming into Hong Kong. Then Iran broke out, and all shipping companies are putting new plans on hold. I hope it's a temporary hold rather than a complete cancellation. It's a bit disappointing because we were hoping to reverse the downward trend. We may now have to wait a little longer. Hopefully, the turmoil in the Middle East may give us a new opportunity as well. A little bit like the capital that's been going to Dubai and so on. Hopefully, some of the shipping companies will realize they may be putting too many eggs in too few baskets.
In the past 10 years or so, some of the ports have become bigger and bigger and bigger, implying more and more eggs are put into them. It's when turmoil happens, that's when people look at diversifying the risks, and that may result in some cargo coming back to Hong Kong. I can't be bullish about the Hong Kong terminal business, but I wouldn't write it off yet. Excuse me.
Thank you. In the interest of time, we will take the last question, if there is any. Hazel from UBS.
Hi, this is Hazel from UBS. Can management share a little bit more on the retail sales performance in Mainland China shopping malls year- to- date? For example, the trends in footfall, tenant sales, and any changes of tenant mix. For the equity investment portfolio, what is the current composition and size of the group's equity investment portfolio, and how does management think about capital allocation across sectors? Will you consider any sector rotation, like put more onto the U.S. AI names from property?
Okay. First of all, the investment portfolio, what was the size at the end of last year?
HKD 43 billion.
HKD 43 billion. That includes unlisted equities. The listed part is HKD 34 billion-HKD 35 billion at the end of last year. It would have appreciated since then, but we sold about HKD 2 billion. It would be bigger than that. I remember at the end of February, that portfolio had a value of about HKD 33 billion or HKD 35 billion. That was end of February, two weeks ago. Since then, it's probably come down a little bit. We don't do rotation within that portfolio as such. It's long-term investment, and so we don't do a lot of trading. It's mainly in Hong Kong properties. Some financial services. Mainly Hong Kong-focused businesses. Retail sales in Mainland China last year rose by 5%, 3%-4%?
Yes, nationwide.
Nationwide, it rose by 5%. Our malls did not achieve that. Our malls actually lost some retail sales. There are different reasons for it. The main ones being, first of all, the overall nationwide retail sales increase, a good part of it was driven by the trade-ins, the incentives, the trade-ins, and the coupons. We don't carry as big a share of the merchandise lines subject to trade-ins, home appliances and so on. Our share of those main lines subject to trade-in is lower than our share in other categories. Another reason is the nationwide average retail sales increase was more significant in third and fourth and fifth tier cities, and less so in first and second tier cities. We're only in first and second.
In a way, it's the trade mix, therefore, in our malls as compared to the nationwide profile, which resulted in a decline in our case, compared to the nationwide average. Another factor is, of course, competition. In Chengdu, in particular, new competition came in, we had to fight to retain our share. As I was saying 10, 15 minutes ago, we're seeing positive trend this year. It's too early to conclude that we're going in the right direction.
Thank you, and thank you, everyone, for the questions. The webcast of the event will be uploaded to our official website tonight. Thank you again for joining us today, and thank you for your support.
Thank you.
Thank you