Good afternoon, everyone. A very warm welcome to Wharf Holdings Interim Results Briefing. I am Angela from the Investor Relations team. You can download the PowerPoint presentation using the QR code displayed on this LED backdrop. Today, our management team includes Stephen Ng, Chairman and Managing Director, and Kevin Hui, Director and Company Secretary. Before the PowerPoint presentation and Q&A session with the analysts, may I first share a few things about our backdrop. As some of you may know, we used to feature a different backdrop for each results presentation. This time we are showcasing The Monet, our new luxury residential property on The Peak in Kowloon. There is also a special message in the backdrop. This 140 years anniversary backdrop marks an important milestone in the group's history. Founded in 1886, Wharf Holdings today stands as the seventh company with the longest history in Hong Kong.
In celebration of this milestone, the board has resolved to declare a special dividend of HKD 0.20 per share. Together with the interim dividend of HKD 0.20, total distribution doubles to HKD 0.40 per share. Let's go back to the PowerPoint presentation. The headline is, "Operating and underlying profits increased by 6%, excluding investments." Since the last quarter of 2025, the group has been unwinding part of the equity portfolio, which results in lower investment income during the reporting period. Excluding the investment income, group revenue increased by 2%, while operating profit and underlying net profit both increased by 6%. Despite a challenging operating environment, mainland IP delivered stable results, while the shortfall in mainland DP sales was covered by stronger contributions from Hong Kong properties. In addition, our logistic business remains resilient despite the ongoing global disruptions.
Over the years, we remain focused on premium properties across Hong Kong and Chinese Mainland, which are the major contributors to our total assets, revenue, and group revenue. I mean underlying net profit. Our earnings are underpinned by a substantial recurring income base from investment properties, hotels and logistics. Our Hong Kong residential development pipeline provides growth opportunities. Here shows more details on the financial performance. Reflecting lower dividend income after unwinding part of the equity portfolio, underlying net profit decreased by 17%. During the reporting period, Hong Kong DP contribution overtook mainland DP, driven by higher sales recognition, while mainland DP continued to be affected by a weak market condition and net provision. Mainland IP remained the largest and stable contributor, accounting for 67% of underlying net profit. Our listed equity investment amounts to HKD 30 billion after partial disposal.
The portfolio continued to preserve capital and generate dividend income. After recognizing a prudent investment property revaluation deficit of HKD 2 billion, group profit amounts to HKD 48 million. Including the special dividend, the total dividend distributions doubled to HKD 0.40 per share. The strong balance sheet remains one of our key strengths, and we have achieved net cash position since the end of 2025. Excluding the debt from Modern Terminals, net cash increased to HKD 8.6 billion, mainly resulted from the disposal of HKD 3.2 billion equity investment with HKD 0.4 billion of surplus. Average interest rate was 3.1%. In the following slides, we will walk through the performances of our business segments. In Hong Kong, overall residential markets saw meaningful gains in price and volume, supported by solid local demand and the continuous talent and capital flow.
Attributable Hong Kong DP revenue increased remarkably to HKD 1.3 billion, and operating profit to HKD 166 million, primarily from the sale recognition of House 1 at 1 Plantation Road, which is our ultra-luxury project on The Peak, and Victoria Voyage, our 30% owned JV project in Kai Tak. Contracted sales increased to HKD 1.1 billion. At period end, our Hong Kong residential land bank amounted to 2.7 million square feet, with net book value of HKD 56.6 billion. Notably, this includes our valuable Peak portfolio in Hong Kong and Kowloon. The Monet, our Peak project in Kowloon, comprising over 400,000 sq ft GFA, is undergoing preparation for sale launch. Other key projects under development include Mansfield Road project on The Peak and Kowloon Bay redevelopment project. Moving on to mainland development properties.
Following our significant reduction in exposure since 2019 and the continued weakness in the market, mainland DP revenue declined to HKD 238 million and operating loss was reported. At period end, unsold stock was 0.7 million square meters and net book value amounted to HKD 15 billion. Our remaining stock is largely concentrated in office, and the demand continued to be subdued. Net order book amounted to 428 million renminbi, including the sales of Chengdu IFS apartment units, which are being progressively released for sale. For the mainland investment properties, mainland retail market remained soft in the first half. However, the group's retail revenue remains resilient, supported by the performance of our flagship IFS malls. On the office side, vacancy remains elevated under prolonged oversupply.
With a stronger renminbi providing some support to our reported Hong Kong dollar results, our mainland IP revenue and operating profit both increased by 1% to HKD 2.3 billion and HKD 1.5 billion respectively. The group continued to optimize tenant mix to drive more performances at the IFS. At Chengdu IFS, an arcade area is being converted and is expected to be complete later this year, introducing a refreshed lineup of brands.
Excluding the area under conversion, occupancy stood at 97%. At Changsha IFS, mall occupancy was 98%. Recent highlights include the expansion of Hermès and Brunello Cucinelli into duplex flagship, and POP MART is also set to open a regional duplex flagship later this year. Moving on to hotels. Wharf Hotels currently operates 16 hotels under Niccolo, Marco Polo, and Maqo brands, mainly in Hong Kong and Chinese Mainland. Park Hyatt Changsha is the group's only hotel with outsourced management.
Segment revenue increased by 4% and operating loss narrowed. Turning to our logistic infrastructure. In Hong Kong, Modern Terminals throughput declined under persistent pressure from overcapacity in South China and regional competition. Modern Terminals revenue remained stable, but operating profit decreased. Against this challenging backdrop, the group proactively secured new businesses, and they are scheduled to commence in the second half. Looking ahead, let's turn to the general market outlook in Hong Kong and Chinese Mainland. While Hong Kong continues to benefit from talent and capital inflows, recovery in the mainland remains relatively uneven, with ongoing challenges in the property sector. At the same time, geopolitical tensions and external uncertainties continue to weigh on the economic outlook. Against this backdrop, we remain focused on maintaining a strong balance sheet and disciplined approach to navigate market volatility.
In the last part of the presentation, we will go through our efforts and performance in sustainability. Our sustainability efforts earned us strong ESG ratings and green building certifications, including LEED Platinum. Last year, the group's near-term science-based targets were validated by SBTi, which marked an important milestone for our sustainability journey. As of June this year, sustainable financing made up over half of our financing. More details about our sustainability efforts could be found in the PowerPoint presentation. That concludes my presentation. We will proceed to the Q&A section with the analysts. A quick housekeeping note before we begin. If you have any questions, please raise your hand. Our hotel staff will give you a microphone. Please introduce yourself and state the organization you represent before asking the 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. Hi. Let's have the first question from Karl, Bank of America.
Hi. Two questions. First is on Hong Kong DP. Just curious what you see in the marketplace, especially in the luxury segment after some of the recent imposed action by Beijing in terms of taxation. Has that sort of changed the potential buyer interest? What does that mean for the timing of launch for your current project? Second is related to capital management. I think the shareholders were very happy with the hike in dividend payout for 1997. HK. For 4.HK, the company's balance sheets are obviously very strong, and we do appreciate the special dividend in the first half.
Just wondering, now that you're closer to monetization for Hong Kong DP as well, is there any sort of intention to perhaps pay a special dividend to pay out some of the cash or set up something to pay out more tied to the IP earnings?
Okay, good. Thank you. First question. We have seen no sign that buyers' interest in ultra-luxury properties in Hong Kong has changed. In fact, we have been in discussion with some buyers for some of our ultra-luxury properties on The Peak, and hopefully we will be close to some deals. They continue to be seriously interested in rare and valuable properties in Hong Kong. So that may be an interesting and favorable sign. Capital management. Yes, we do have a net surplus cash. As Angela referred to in her presentation, we are looking at reinvesting it. How and where? Our first preference is Hong Kong, and our other preference is properties. That is what we have been doing for years and years. In fact, you may or may not have noticed that a couple of weeks ago, there was an Urban Renewal project in To Kwa Wan.
We submitted one of the bids, one of the seven bids or so. We did not win, so maybe that is why it did not catch a lot of people's attention. But we are bidding for land in Hong Kong, and if there are other good opportunities in Hong Kong, we would continue to bid. I cannot guarantee you when we will win, but that would be a good indication of where we would like to see our resources, cash resources, invested in the coming future. In the meantime, our mainland DP business has been in the wind-down mode for some time, as you know. We do not have a lot of unsold stock left in the residential sector. Or I should say this, in the residential sector, which allow strata sale. We do have some residential stock, which is subject to en bloc sale conditions.
That would become an institutional kind of sale rather than retail. As far as retail versus wholesale. As far as retail residential stock is concerned, we do not have a lot. We do not see immediate opportunity to get back into that end of the market. So in the meantime, we look at Hong Kong properties. The board decided today to, as a token of appreciation and to celebrate our 140th anniversary, to pay a special interim dividend. We have not changed our dividend policy. We have not reviewed our dividend policy. This company and Wharf REIC are two different companies. We are brother companies. We have different DNAs, we have different boards, and we make different decisions. I do not think it would be fair to, excuse me, apply one company's direction to the other or vice versa. Excuse me. Thank you.
The next question from Cindy, Citi.
Thank you. This is Cindy from Citi. First question, back to your dividend rationale. Wanting to better understand, like say, for this time, why did you choose to make a special dividend apart from the anniversary? Any other reasons? When reviewing that, why didn't you choose to increase your dividend policy? Why would you opt to maintain the stable dividend policy forward? Under what condition would you started to review your dividend policy? This is the first question. The second question, I want to touch a little bit on your logistic business, actually. Because I saw at your presentation just now, your mention of proactively securing new business to commence the second half. Can you elaborate a little bit more on that? Also, has the shipping alliance restructuring impact stabilized for Hong Kong?
Do you expect your operations to maybe bottoming out from second half this year or next year? Thank you.
Thank you. The special interim dividend is precisely what it is, to celebrate the 140th anniversary. Nothing more, nothing less. We didn't propose to the board to review the dividend policy yet. That is something we can look at in due course, although I don't want to lead you into or give you expectations. Because we haven't done that. We haven't thought about doing it. As far as the container terminal business is concerned, touch wood, most of the reorganization among the shipping companies is hopefully completed, at least this round. Hong Kong as a whole actually benefited from disruption in the Middle East in the second quarter. We also picked up some ad hoc volume during the second quarter. However, that's ad hoc. What we refer to as new business in the second half has actually started. It started a little earlier than we had expected.
It started in June. It will come in progressively rather than all in one go. The decline in Hong Kong volume in the first half has turned into a slight increase in July. That's beginning to narrow the year-to-date decline. It may not necessarily be very high-yield business, but at least we get the business back, we get the volume back. With volume, we've got work to do. Our staff and our contractors get busy. That's the first step. At this point in time, I think maybe it's still very difficult to predict whether by the end of the year we'll be able to catch up to last year entirely, because the new business is coming in progressively.
Thank you. The next question from Mark, UBS.
Yeah. Thank you, management. This is Mark from UBS. I have two questions. I think the first question is also related to the special dividend. I think this year is to celebrate the 140th anniversary. When I look back at the historical report, like 10 years ago and 20 years ago, we did not distribute any special dividend. May I know why we decided to issue the special dividend?
June.
Yeah.
Go ahead.
For the 1997, next year will be marked the 10th anniversary. Should we expect a special dividend as well? Yeah. The second question is more related to Stephen, yourself. Because you have served the company for really a long time. This year, you are already 74. Next year, turning about 75.
Thank you for reminding me.
Just from a succession perspective, do we have any succession plan for both companies, et cetera? Thank you very much.
Okay, thank you. Not when we were 130 and not when we were 120. I didn't check, but I guess you must be right. You must have checked. I'm not sure what we'll do when we are 150, but I'll leave it to the then chairman to think about it. I am 74, and I feel healthy. I like to continue to work. Frankly, I don't know what I should be doing without coming to the office. I still work hard. I'm one of the first employees to come into the office in the morning. Whether or not the board would allow me to do so is a different matter, of course. At the moment, if I were to run over by a bus tomorrow, hopefully not, obviously there'll be ways. It will be inconvenient. But the company will manage.
That was the only question, wasn't it? Okay. Well, again, it's not a 1997 meeting, so I can't speak on behalf of Wheelock.
Yes. I can confirm that chairman is very hardworking and very healthy. Please allow me to confirm. May we have the next question from Alpha, Goldman Sachs.
Thank you. Thank you for taking the question. Two questions. The first one is, you just mentioned you are more willing to deploy capital to Hong Kong DP, right? I just wonder which districts will be more interested in replenish your land banking, and what's your appetite towards Northern Metropolis, which the government is very keen to develop? The second question is on China retail. We just wonder, what's your outlook towards China retail sales growth in second half? We actually note that the turnover rent in first half is actually lower year-on-year. We wonder, what are the key reasons? Thank you.
Thank you. When we look at Hong Kong, it's Hong Kong as a whole, and Northern Metropolis is very much part of Hong Kong. We will be including that in our studies. We have no specific guideline whether we're investing in the east or west or north or south, because Hong Kong is a relatively small market. It also depends on the opportunity that arises, or opportunities that arise. If it's a good opportunity, whether it's north, south, east, or west, we will take a very serious look. Two weeks ago, as I said, this was Kowloon East. I guess maybe Kowloon Central. There's something else this week, and that's Hong Kong Island. There's no specific guideline. We don't restrict ourselves to any one part of Hong Kong.
Retail in Mainland China, generally, the overall market, in the first half was actually not as strong as a lot of people would have expected. We don't see breaking out of it, the market breaking out of it in the second half yet. There's still a good deal of wait and see attitude. It may be because of the government subsidies last year. Once you've tasted government subsidy, you may have a tendency to wait for the next one. It's possible. I'm speculating. It's a little bit like clearance sale in Hong Kong or anywhere else. You wait for the clearance sale to get the best price. Overall, the retail market in Mainland China, we don't expect it to be breaking out of its mold in the first half.
Thank you. Please feel free to raise your hand. Jeff from DBS.
Hi, management. You mentioned that Wharf Holdings submitted a bid for the URA project in To Kwa Wan. Did you submit your bid on your own or did you collaborate with your sister company or parent company, Wheelock, in this tender? Also, if you look at the positioning of this project, it's slightly different from those projects you are undertaking in Hong Kong, which is more high-end, ultra-luxury. In the future, when you decide to bid for the replenish the land bank, will you focus on high-end or do you not have any particular preference? What is the difference between Wheelock and Wharf Holdings in terms of the land banking strategy? This is the first question. The second question is related. Also, a follow-up question on the China retail. Did retail sales or tenant sales in China for your mall decline in the first half?
If so, is this something to do with arcade conversion at Chengdu IFS?
Okay, good. Thank you. The bid last week or two weeks ago, I think. Recent bid. It was submitted by Wheelock Properties on behalf of Wharf. 100%. All right? That is what we expect to be the model in the immediate future. All right? We do not have a separate team. There is already an organization within Wheelock Properties. They know the market well. They know how it works. So we will continue to work with them as our partner in that regard. But the capital will come from Wharf. In this case, it's 100%. Retail in Mainland China. In our case, this would partly address the previous question as well. In our case, a good part of Chengdu IFS was closed for conversion. So that affected the performance of retail at Chengdu IFS, and therefore Chengdu IFS underperformed Changsha IFS. Changsha IFS grew well.
Chengdu IFS, I think, slipped a little bit, partly because of the conversion. When the conversion is finished, hopefully, we will be able to start to catch up. Another factor which affected the mainland DP performance, albeit a small factor, is that because we have started to sell the apartments in Chengdu IFS. So the occupancy in the service apartments will start to. Well, actually not will, has started to slip, because we are getting vacant possession of the units for amalgamation or sale.
We haven't sold too many units so far, but the next lot, we will put in the market within the next few weeks. So we will start to see more sale in Chengdu IFS. And it's a good price. We are able to get 60,000, 70,000 renminbi per square meter, which is good for that product. The ticket is typically close to 20 million renminbi per unit. Good price.
That will help our mainland business.
Thank you. If you have any questions, please feel free to. Yes. Mark from UBS.
Yeah. Thank you, management. I have a follow-up question regarding on the relationship with Wheelock as well. Because in the past, I think the speed of work is really clear. 1997 is focusing on Hong Kong IP. Wheelock is focused on mass. We are more like Hong Kong, like ultra-luxury and China DP. Just want to check, what was the rationale that we are entering into the mass development market by ourselves now, but instead of Wheelock? Yeah, just want to keen to hear your thoughts. That's the first questions. The second question, I think is regarding on the equity portfolio. Definitely, we have done some divestment. May I know what kind of asset we are retained within the portfolio? And in the statement you mentioned a lot of things about AI, so do we think that we should switch part of our portfolio in investing in AI stock?
Thank you.
For AI? Mm-hmm.
Just the outlook, because
Oh, okay. Okay. Short answer to your question is we have a much bigger balance sheet than Wheelock Properties. We have capital deployed. As the mainland DP business continues to wind down, more capital will come back. We are getting that. So we need to invest it anyway, and that is why we are coming into the Hong Kong DP business as well. But in between the two Wharf public companies, listed companies, there would be little or no confusion with us. One is a DP company, the other one is an IP company, as far as Hong Kong is concerned. The listed equities that we disposed of in the first half of the year, actually the beginning of the year, were mainly low-yield stock. What we continue to hold would tend to be higher yield stock, with one exception.
That exception, unfortunately, hopefully it will only be temporary, and that is Greentown. We hold it as a strategic position. We have been holding it for 14 years. The fact they did not pay any dividend for last year affected our dividend income.
Thank you. Follow-up question from Cindy.
Hi. Thank you. I got two follow-up questions. The first is on your capital deployment. Is it fair to say that you do not want to remain in the net cash position, or do you have any target gearing per se? The second question is more theoretical. Let us say, I want to gauge your feeling on how to narrow the NAV discount for this company. Wharf REIC, obviously, what they did is divesting some non-core asset, increased shareholder return. For you, what are the measures that you consider can be doable? Are you looking to maybe unlock value via any asset disposals or reorganize any business, or how is your feeling to that? Thank you.
Okay. Thank you. Can you go first question? Okay. Well, first of all, being net cash positive is not a KPI. We will put the cash or the capital to use, but we hopefully will be looking for investment of good use, good quality, good return, and so on. We do not necessarily need to turn assets before we can invest in something else. We obviously have that capacity. The second question is very profound. What we typically do is we look for assets which have long-term value. The ultra-luxury properties on The Peak and to a lesser extent, The Monet in Kowloon, they do not turn over quickly. Holding periods are generally longer. Obviously we need to balance that with the IRR. We believe in good assets with long-term value, and that is what we will continue to look for.
Obviously, if at the same time we can give shareholders a better and better return, that would be very much our priority too. TSR, partly yield, partly share price. TSR needs to be looked at in a longer horizon, not three months or six months. That is how we look at it.
Thank you. Are there any questions? Follow-up question from Alpha, Goldman Sachs.
Thank you. So more of a housekeeping one. Given it is 140 years anniversary, will there be another, final special dividend? How should I think about it?
I cannot preclude that, but I cannot include it either. It is obviously something that the board needs to consider, and that was not raised at today's board meeting. We will not need to deal with that until the board meeting in March. We actually turn 140 on November 15th. Remember that date. It is a Saturday, this year. November 15th. So technically, we are not 140 yet, but we will very soon. I will take your suggestion, if I may call it, and raise it with the board in due course.
Thank you. Another follow-up question from Jeff.
When we look at the borrowing costs in the first half, the effective borrowing cost is higher than a year ago. May I know the reason behind? Is this something change with the debt profile?
No, it was because of an aberration, quote unquote, commercial aberration, not accounting aberration. Commercial aberration last year, because we did some hedging last year, which gave us a significant net reduction. The hedging is a lot more insignificant this year. But even at 3.1% right?
Yes. Still very low.
It's very respectable.
Yeah.
Great.
Thank you. A follow-up question from Karl Choi.
Two questions. First, just want to get a little bit more details regarding the relatively large China IP revaluation loss. Any cap rate changes or just the rental outlook? Second, going back to The Monet. Any update on the launch timing?
Monet timing, likely to be in the second half. A launch may not necessarily be the right term to use. It's not like selling MTR projects where we get 7,000 tickets or whatever. We're doing pre-marketing, soft marketing on a targeted basis, and we have some buyers who are already interested. Do not expect a long queue in the sales office, for instance. Hopefully we would be able to start to report some sales in the second half. IP revaluation is mainly, I think one factor relates to the lease expiration. I think we reported on that six months ago. Some of our land leases are coming due in less than 20 years. Typically, when the mainland market opened for properties, in the early to mid-1990s, leases of 40 or even 50 years were offered. 50 years from, let's say, 1995 would mean 2045.
That will be less than 20 years from now. There is still no clarity from central government about the extendibility of these leases. In fact, increasingly, we are getting signals that these leases will not automatically be renewable like Hong Kong leases. Hong Kong leases, as you are familiar with, you get automatic renewal for 50 years. You pay an annual rent, no additional premium. That does not seem to be the model that the mainland is following. In fact, we believe it is going to be more like the Singapore model. In Singapore, you get a leasehold for 99 years, and along the way, with government permission, you are allowed to top up the lease back to 99 years upon payment of a premium, and get a scale. As these ground leases expire or move towards expiration, the value of these properties may be affected.
I think that is an important factor in the valuer's consideration.
If I may ask a follow-up question. I think both Guangzhou and Shanghai have rolled out pilots that allow landlords to renew for, I think, 20 years at some set prices. What is your initial thinking about that? Are there cases where you would think that it is actually not worth extending the lease and just walk away? Just curious about your early thinking.
Obviously, it depends on the price. We will have to do our numbers at that time. Some of these buildings may have to be redeveloped by then anyway, so it will possibly be a brand-new feasibility study.
Thank you. If there is no more question, I will now conclude the presentation. Thank you all for joining today, and the webcast will be uploaded on our corporate website afterwards. Thank you.