Earnings Call: H2 2021

Sep 30, 2021

Investors, ladies and gentlemen, good afternoon. Welcome to New World Developments FY 2021 Annual Presentation Analyst Briefing. I am from the Investors Relations department, Christy. I'm the moderator for this session. Let me introduce to you our management, New World Development Executive Vice Chairman and Executive Chairman, Doctor. Adrian Zhang CFO, Mr. Laofo Kang. If you have any questions, please type your questions into the chat box on the webcast. We will pick some questions to answer. Now I will pass the floor to our management. Recently, the central government has been stressing human centric development philosophy. Within high quality developments, we should promote common prosperity so as to meet the increasing needs of people for better quality of life. New World has been attaching importance to CSV and ESG. Our past industry integration? The essence is that it has to be human centric. City is to develop humanistic properties and enhance or amplify city's aesthetics and unique culture. Industry is to provide the most humanistic services to upgrade industry and society and people's living quality. The old business model only uses high leveraging to blindly expand scale and develop homogeneous properties to compete on sales value. This old model is outdated. On the other hand, our business model has been transformed. So we have changed from a purely property company to a diversified enterprise. In the past 50 years, we have built our unique competitive advantage, and we have become a benchmark enterprise of city industry integration. We have an ecosystem spanning across different industries. We use software and hardware to build small communities, and we perfectly achieve city industry integration and social innovation so that there is virtuous interaction with national strategies. Now let me give some examples about how we have achieved city industry integration. Regarding culture, we have developed the Wangjiang Xincheng project in Hangzhou, and we helped the governments to conserve Yuan Tai Lo, which is a historical building of the South Song Dynasty. So we maintained city memory and its uniqueness. In terms of technology, in Panyu, we built the innovation center to promote digital small community building and also regional innovation. For education, we have brought in Benenden School, and we worked to offer bilingual K11 education of high quality for the community. And we contribute to the pooling of talents. And then for Health Care, under Humensa, we offer endoscopy centers and elderly care centers, and we offer balanced and also high end health care service. We also have insurance business. We'll continue to expand, and we will be an important link in Citi Industry Integration. In our ecosystem, we have more than 17,000,000 customers. With CRM and K dollar reward scheme, we can achieve internal circulation and cross selling. This year, total amount of cross sells reached 1,000,000,000 yen. In FY 2022, we expect to reach 1,500,000,000 yen. This year, we have issued, dollars 200,000,000 and we reached 82% burn rate and 5 times sales multiplier. Now let us review our 20 21 FY financial performance. We performed well in both business and our profitability, and we will continue to be prudent in financial management. Revenue was HKD68.2 billion, up 16% year on year profit attributable to shareholders, HKD1.2 billion, up 7% year on year. Underlying profit, HKD7 billion, up 6% year on year. We continue to strictly control our CapEx and expenses. Net gearing ratio came down to 35.6%. Comparing with FY 2020, we are down 6%. Cost of financing last year was 4.06%, and it came down to 2.76%. Recurring administrative expenses were down 12% year on year. As of the end of June, capital resources available reached HKD119 billion including cash and bank deposits of HKD 62,000,000,000 and undrawn lines of HKD 57,000,000,000. In Hong Kong, property contracted sales reached HKD42,400,000,000 and this is more than 100 percent of the whole year target. In Mainland China, contracted property sales reached HKD20.2 billion. So we completed the double digit growth target for the whole year. We sold HKD18 billion of non core assets, and this exceeded our target of HKD 13,000,000,000 to HKD 15,000,000,000. Now let's turn to, Property Development performance. Total revenue up 18% in Hong Kong mainly from Artisan Garden, Atrium House and Park Villa. In Mainland China, the whole year booking is more or less the same as last year. Hong Kong segment's result, up 31%. Mainland China, the decline was from a project with lower GP margin in Greater Bay Area. Overall, gross margin of the group still reached 41%. Now let's talk about Hong Kong. This year, contracted sales reached JPY 42,400,000,000, exceeding our average yearly target of JPY 20,000,000,000. So we are number 1 in the market. First of all, on Taiwan Station, Pavilion Farm 123, the contribution was HKD37.4 billion, followed by 888's Lai Chi Court Road commercial building project in Changsha Guan. Changsha Guan, as of now, we have sold 70% of GFA, contributing JPY 5,400,000,000. In FY 2022 and 'twenty 3, in Hong Kong, every year, there will be sales of 10,000,000,000 yen. In Mainland China, contractor sales reached RMB 20,200,000,000. We completed the whole year target. In Greater Bay, sales contribution reached 65%. In the future, we'll continue to lay a good layout in Greater Bay. And the operation headquarters of China has already moved to Guangzhou to achieve localization of talents in the coming 2 years. In China, sales will be maintained at around RMB 20,000,000,000. For property investment, the external environment is full of challenges, and New World is among the very few companies which are able to achieve positive growth in terms of property investment performance. And then rental income and segment results were up 10% 31%, respectively. This year, we opened 4 new K11 projects with altogether 180,000 square meter of area, including Wuhan K11 Art Mall, 1 and 2 K11 Atelier and Tianjin K11 Select, they have become new landmarks. And in Wuhan, in 1.5 months, we achieved sales of RMB 150,000,000. And in Tianjin, on the 1st 2 days of opening, sales already exceeded RMB 11,000,000. This year, K11's performance exceeded the overall retail market. In Hong Kong, K11 Retail Business rose 57%, but the overall markets dropped 3%. In Mainland China, K11 retail value up 63%. And for the whole market, retail value only rose 11%. We maintain high occupancy ratio for K11. In Hong Kong, more or less 100% occupancy. In Tier 1 Cities Mall in China, 94% occupancy rate. For 11 skies, the construction progress is satisfactory. The 3 Grade A K11 Atelier office blocks will be partially opened in May 2022 FY. We have already attracted 16 important tenants to come in. And in mid next year, occupancy ratio will reach 65%. And then you can see that in Shanghai K11, Huaihai Zhong Road project already started construction. We invested into the land in August last year. And in November, we got the approval documents and permits. So you can see that we have strong execution power. The group operates 17 ks11 projects in Hong Kong and China. And in the coming 5 years, there will be 23 more, altogether 40, with a total GFA of 2,920,000 square meters. In Hong Kong and China, for K11 projects, rental income will achieve a 30% CAGR for FY2021 to 2025. Because our rental income continues to grow strongly, we believe that recurring underlying profit will account for an increasing share of total underlying profit. So this year, it's 39%. In 2024 FY, it will be 50%, so enhancing stability of our profits. For disposal of non core assets, this year, we sold JPY 18,000,000,000 of non core assets, exceeding the whole year target of JPY 13,000,000,000 to JPY 15,000,000,000. In the coming year, the target will be JPY 8,000,000,000 to JPY 10,000,000,000. So we can continue to get back cash to develop higher yield projects. So we will continue to do proactive management to maintain strong financial strength. If you refer to all financial ratios, we have shown improvement. This year, average financing cost was 2.76%, down 1.29% from last year. Net gearing ratio, down 6% at 35.6 percent. Interest coverage ratio improved from 3.6x to 6.9x. For FY 2022, we have already properly handled all repayments. In May, we already refinanced a perpetual bond that will mature in October. Coupon rates was down 1.6%. Every year, we can save interest expenses of HKD150 1,000,000. In FY 2022, net gearing will be at 40%. We are prudently controlling our CapEx. In FY 2021, CapEx ought to be JPY 46,000,000,000. However, we only spent 35,000,000,000 yen. And this year, CapEx estimate was 44,000,000,000 yen, a decrease by 2,000,000,000 from last year. This year, underlying profit was up 6%, so we decided to return capital to shareholders to pay back to their support. So final dividend will increase by 0 point 0 $2 reaching 1 HKD1.5 per share. So for the whole year, altogether, HKD2.06 per share. At appropriate times, we will actively buy back our shares. Starting from 2018, we have been buying back our shares. And at the beginning of this fiscal year to the end of August, we have already spent 1,300,000,000 to buy back 36,400,000 shares. This shows that the management is full of confidence in our business. In Mainland China, well, there is more control and adjustment and management of the property market. And for our company, with sound finances and strong operating capability, this is an opportunity. We have 3 major strategies: quick win, cooperation with SOEs and old town redevelopment. In Hong Kong, quick win strategies include old buildings acquisition and rebuild, halfway projects acquisition and on block building acquisition and strata title sale. These projects are projects with shorter cycle. So it is expected that presale can start within 1.5 year and booking can take place within 3 years. In Mainland China, we will adopt quick win strategy. We will acquire halfway projects. For example, there are 2 urban renewal projects. There is 1 in Shenzhen, which is an industrial zone urban renewal project. In Q4 2022, it can get into our land bank, and we don't need to put in place any renewal plan and also the relocation compensation period of 3 years. And then there is a hospital zone urban renewal project, and it will take around 1.5 years. And in 2023 early 2023, sales can happen and booking can happen in 2026. These two projects are in line with national strategy about creating common prosperity and to revitalize agricultural villages. And then there is the Hangzhou Wangjiang Xincheng project. 22, and it will be completed in second half twenty twenty three. Then you can also see Guangzhou Zengcheng project. From land acquisition to presale, it only took 1.5 year, and it is expected that it would be completed in 2023. These projects once again show our very efficient operation capability. Recently, the central government finalized the concessionary policies for Tianhai FDA. A New World started to make plans in 2016 to cooperate with SOEs. In the Shenzhen Prince Bay project, we cooperate with Shellco, China Merchants and Guangzhou Metro. We make good use of the ecosystem and support internal circulation. For Shenzhen, south tower was sold in the end of July, and we encashed RMB 3,200,000,000. New World has been emphasizing that old city redevelopment is for public benefits. We make good use of the huge ecosystem to enhance the regional functions, and we achieve industrial upgrading. We want to preserve city memories. So now we have 8 old city redevelopment projects altogether, an increase from 6 in the past. And in 3 of them, we have made important progress, including Shenzhen, CLai, Guangzhou Haiju Nanxi Village and also Guangzhou Zengchang. So they have the formal JV has been established already, offering total GFA of more than 1,000,000 square meters. And then our K dollar has become a catalyst contributing to the ecosystem internal circulation and cross sells. In 2021 FY, K Dollar program performed well. So as such just now, spending sales multiplier was 5 times, burn rate 82%. This shows higher utilization and higher user stickiness. K Dollar contributed more than 15% of Hong Kong K11 total sales, and it continued to enhance customer loyalty. We started cooperation with 3rd party, for example, banks and Internet giants. We diverted public domain traffic to our ecosystem. Through different industries, we will expand our B2C ecosystem, and Health Care is one of the important focuses. Humensa operates the biggest gastrointestinal Endoscopy Center in Hong Kong, and that is HD Endoscopy Center. Now there are 4 centers offering such service. At the same time, we offer home care service with more than 5,400 health care practitioners. We are the biggest operator of elderly care homes in Hong Kong. We have 9 elderly care homes offering more than 1100 beds. These industries and services will also be radiated in GBA. So in FY 2022, we plan to open at least 10 new medical and wellness outlets offering medical imaging, multi specialist clinic service, postpartum care center, dental, medical cosmetics and also G and O services. We are working with Gleneagles and also Distinct Healthcare to expand and grab market share. So we have more than 17,000,000 customers as the basis, and we can become good quality health care service provider in GBA. Recently, we signed strategic cooperation agreement with China Taiping. We share resources to develop GBA business in the areas of health care investment and elite client value adding service. Apart from health care, our ecosystem also incorporates various life stages of customers from pregnancy of mothers and then birth of children and then to learning and growing up. Baby Kingdom is the biggest online parenting discussion forum in the world, and it is also the number 1 extracurricular activity search engine. And there are 2,100,000 monthly active users and 27,000,000 NPV. D MINE has more than 2,000 classes, and we are serving more than 10,000 households. And we have more than 400 schools using donut and our new IP products. We will continue to innovate. We have incubator, Eureka Nova and Accelerator Impact Commons. And then we have already achieved 70 business integrations since launch, and 30 of them were completed in FY 2021. Eureka Nova in the end of October will start the 3rd cohort. The theme is around ESG and also Renewable Energy and Waste Management. This year, we will start the first GBA accelerator, and the theme is AI and Robotics. These startup will work with us in Guangzhou and Hong Kong and to develop solutions. We have also created IP strategies and so far we own 178 IPs already. Long time ago, we started to promote ESG and CSV. Yesterday, we launched that we announced that we will set up New World Build For Good, which is a nonprofit making property social enterprise. We will gather collective effort from enterprises and community to solve long term housing issues in Hong Kong with innovative ideas. And we'll work with experts to explore housing supply methods that are sustainable. We are the 1st developer in Hong Kong to announce to donate land to NGO and also social enterprises to develop transitional housing. We hope to help grassroots to move up. Right now, we have already donated 500,000 square feet of farmland, offering 2,000 units. So we are moving towards real sustainable development in environment, social and economic areas. So our 2,030 sustainability vision actually is in line with UN SDGs. And the 4 major objectives are about environmental protection, health care, smart development and caring. In Hong Kong, we strive for improving energy efficiency and reducing energy consumption. In FY 2021, we saved our electricity tariff of HKD5 million. We continue to develop sustainable finance. In January 2021, we are the 1st in the world launching sustainability linked USD bond. We are the 1st property developer in the world making such an issue. In terms of climate change policy, we have added in the no call pledge. And our goal is that by 2,050, in all buildings, we want to achieve net 0 carbon. And by 2,030, we should achieve size based targets, and we will work with City University. We have reached a cooperation agreement to promote green innovative technology. Finally, let me conclude on our future strategies. With our huge ecosystem, our hardware and software, we will work in line with national strategy to support city industry integration. We will offer high quality service to promote common prosperity. We will expand our ecosystem to drive internal circulation to increase customer stickiness and cross selling. As such as now, this year, cross sales reached 1,000,000,000. Next year in FY 2022, our target is 1,500,000,000. And finally, recurring profit to contribute more than 50% of total underlying profit by FY 2024 to offer stability. Recently, we seized opportunities to make use of quick win to grab market opportunities. We also proactively managed our capital to maintain our net gearing. We'll continue to do a good job with CSV and ESG. We are the first to donate land and to offer a new gen first home program. Thank you very much.