Earnings Call: H1 2021

Feb 26, 2021

Friends of the Investment Sector, good afternoon. Welcome to New World Development's 2021 FY Interim Results Presentation. This is the online analyst meeting. I am Carrie, General Manager of the Investors Relations Department, moderator for this session. Let me introduce to you our management. We have Executive Vice Chairman and CEO, Doctor. Adrian Chang CFO, Mr. Edward Lau. If you have any questions, please type the questions into the chat box of the webcast. Because of time, we will pick some questions to be answered. Now we will pass the floor to the management. Investors, good afternoon. I am CFO of New World at WebNow. I will first present our group's 2021 FY first half results. Please turn to Page 8. Through active management, in 2021 FY, our results were better than expectation. We believe the worst time has been over. Our revenue was HKD 35,600,000,000, up 10% year on year, mainly came from property development, property investment and core assets of NWS. Profit attributable to shareholders, HKD 1,000,000,000 Comparing with same period of last year, it is stable. COVID-nineteen was volatile, but we are stringently controlling our costs and expenses. So our recurrent administrative expenses was down 12% year on year. Comparing with FY 2020, at that time, we're down 8%. So we had made improvements. Through distributing stable interim dividend and also in December 2020, we bought back 10,400,000 shares of MWD. We actually paid back to investors' support. In Hong Kong, in the first half of the year, property contracted sales reached HKD26.3 billion. It exceeded our full year target of HKD20 1,000,000,000. In Mainland China, in first half fiscal year, property contracted sales was RMB 11,200,000,000, slightly higher than our half year results. For the whole year, we want to achieve mid to high double digit single digit growth. From 2021 FY till now, we successfully sold noncore assets of HKD12.8 billion, including HKD3.2 billion of bus service, RMB1.3 billion of Wuhan office properties, RMB6.5 billion Sewage Treatment Business and HKD400 1,000,000 Northern China Residential Property Management Business and others. So this year, we will exceed the target of HKD13000000000 to HKD15000000000 of sale of noncore assets. Page 10. You can see that our property development revenue was up 7% mainly from Ningbo New World Plaza Land. More sales revenue will be booked in second half of twenty twenty one. In Hong Kong, about JPY 4,000,000,000 to JPY 5,000,000,000 main revenue was from Artisan Garden and Atrium House. In the whole year 2021 FY, Hong Kong sales revenue will reach HKD7000000000 to HKD8000000000. Because of a time difference, in the second half, there is more revenue than first half in Hong Kong. In Mainland China, revenue booked for the whole year is more or less the same as last year. It mainly came from Prince Bay, Guangzhou Project and Shenyang New World Garden. Segment profit was down 40%. This is because the booked GBA project gross profit margin was slightly lower. For the group, our consolidated gross profit margin was 32%, which is healthy. For GBA project, gross profit margin was 66%, which is strong. For Pavilia Farm, our contract sales exceeded HKD23 billion. In only 6 weeks, we already surpassed the HKD20 billion target sales target for 2021 FY. Now we are applying for presale consent for Phase 3. And this project had broken our record in the past 20 3 years in Hong Kong. It is known as the new media king by the media. We have incorporated the post pandemic concept into our building and design. In order to avoid gathering of people, pavilion farm is the first project in Hong Kong applying blockchain technology in PropTech, and we encourage buyers to apply in a paperless way, and we greatly shortened application processing time. Those who cannot get slots in the 1st price list will automatically be moved into the next price list. So this enhances our competitive advantage. 888 Laiji Kok Road. This is the 1st commercial property project to be sold after the abolition of double stamp duty of the government for nonresidential properties. The first 44 units were sold within the first hour very quickly, and sales reached HKD600 1,000,000, breaking the transaction record for nonresidential property in Hong Kong. Up till now, we have sold more than 70 units and 2 full storeys and cashing HKD1.9 billion. Average price was HKD30 1,000 per square foot. In 2021 first half, we realized RMB 11,200,000,000 contracted sales, exceeding half year target. And Greater Bay Area contribution was more than 76%. ESP was RMB 39,000 per square meter, higher than other companies' projects. For GBA project, gross margin is particularly high at 66%, and ASP was more than RMB 51,000 per square meter. In GBA, we have altogether 5,600,000 square meter of land bank, which can be developed immediately and also agricultural land pending modification. This includes both Hong Kong and Mainland China, accounting for 62% of our total land reserve. On 27th January, together with Imperium Group, CSI Properties and also license developments, we've formed a consortium, and we successfully won the bid for Southside Phase 5 project in the superstructure of Wongchokhang Station. Total GFA, 636,000 Square Feet and 2 residential blocks can be built, offering no less than or no more than 1050 units. And average area will be 600 per square feet with unblocked sea view, mountain view and good support facilities. Definitely, it is going to see the same success as Pavilion Farm. And at the reserve price of HKD4.8 billion, we won the title of North Point State Theater Building. We undertook to preserve this iconic building with 68 years of history. It is the first Great Run historical building being sold in Hong Kong in public auction. Total GFA, 446,000 Square Feet, preserving more than 500 artifacts. We will try our best to regain vitality for this monument building so that it will become a cultural oasis. The pandemic has brought about a lot of challenges to the external environment, but rental income was still up 6% in Hong Kong, up 7% Mainland China, up 4%. Every year, K11 organizes many events to drive sales and footfall. Next week, our LEGOLAND will be opened in K11 New Year, and there will be other world renowned brands coming in. In first half twenty twenty one FY, Hong Kong K11 Retail sales was up 56%. During the same period, Hong Kong Retail sales was down 13%. We took this opportunity to expand our market share. Since 2021, so now that is February January February, Hong Kong K11 New Year retail sales was up 54%. Hong Kong overall K11 retail sales was up 41%, driving the retail sales growth of 81% in Greater China. The pandemic has affected the whole 2020. However, for K11, more occupancy rate is still high. K11 is almost 100%. We use technology to grab market share, for example, through K11 App and K11 Go to do live streaming. We have attracted more than 3,000,000 views. For our Club 11 member scheme, we successfully expanded the ecology, and we attracted members to do repeat purchase. For K11 member spending on an HoH basis was up 110%. In Mainland China, K11 successfully seized the opportunities from consumption upgrade and domestic circulation. Its mall sales in 2021 FY first half was up 35% year on year, but the market only grew 3%. In 2021, January February, mainland China K11 retail sales was up 149% year on year. With WeChat Mini Program K11 goal, we continued to drive member spending. And member sales on HoH basis was up 91%. In December last year, Wuhan K-eleven Art Mall Phase 2 was opened. It is the 1st new mall which was opened during the pandemic or after the pandemic, and we benefited from revenge spending. In the 1st 3 days, we successfully attracted 700 Gold Card members, and we achieved sales of 5x that of the opening of K11 in Guangzhou in 2018. In 2025, for K11 China, the attributable GFA will increase to 1,300,000 square meters or 2.5 times that of now. With the rapid growth of K11 China, we're going to expand property commercial property management revenue. 11 Skies is going to be the biggest integrated development project in Hong Kong adjacent to the Hong Kong airport. It doesn't only face Hong Kong residents. Within 1.5 hour of Living Circle, this project will attract 31,600,000 population from Shenzhen, Zhuhai, Zhongshan, Jiangmen and Foshan, accounting for 44% of the total population in GBA. We will invest HKD20 1,000,000,000 in this mixed use development project, including 800 stores, 120 F and B stores and also K11 Atelier will be responsible to operate 3 Grade A office blocks, and KXANIA and SkyTrak will come in to form the biggest indoor entertainment center. K11 Atelier has already locked in a number of cornerstone tenants, including POC Hong Kong, Citibank, Standard Chartered, FT Life, Trinity Medical Centers and so on. In Hong Kong and Mainland China, the group operates 14 ks11 projects. In the coming 5 years, there will be an increase of 24. Hong Kong K11 rental income will see a mid to high single digit CAGR. And for Mainland, it will have 25% to 30% CAGR. Our malls have brought about property management opportunities so we can create light asset cash flow. In 2021 FY, we successfully sold non core assets of HKD12.8 billion dollars, HKD3.2 billion of bus, RMB 1,300,000,000 Wuhan Office, RMB 6,500,000,000 Sewage Treatment Business, RMB 400,000,000 residential property management. We are confident to exceed the target of sales of non core assets of HKD13 1,000,000,000 to HKD15 1,000,000,000 So we can use the cash to invest in high efficiency and high return businesses and optimize our portfolio. Our financing cost last year was 4.05%. It came down drastically to 2.93%. Net gearing ratio improved from 41.6 percent to 40.6 percent. In January this year, we issued sustainability linked bond of USD 200,000,000. We are the 1st property developer issuing sustainability linked USD bond in the world. The coupon rate is 3.75%. Around 80% of the investors are international ESG Investors. The group promised that in 2026 or before, the rental properties in GBA will use renewable energy 100%. And in this fiscal year, we issued 3 bonds with a historically lowest interest rate. So this can help lower our future financing cost. ESG, in the first half, we are still the international leader in ESG integration. We adopted further climate actions in order to mitigate the climate crisis globally. Among our main international ESG rating companies, we got good recognition. For example, in 2019, we got the highest rating from GRESB. And then in 2020, we were rated globally 1 in terms of climate resilience. We'll continue to promote our performance in 2030 vision. Our progress is in line with expectation. In the first half, we had already reduced carbon emission by 26%. In 2020 FY, that was 22%. So we are above that. As a forward looking company, we are strengthening our governance to promote climate action. All ESG matters, especially climate risk, are supervised by the Board. And then we support TCFD, for example, our 14 GBA projects have already got climate resilience building and design guidance. And then we incorporate no coal pledge or net zero carbon undertaking in our climate change policy. And we have signed SBT, science based targets. We will work towards limiting the temperature rise globally to 1.5 degrees Celsius. SBT is supported by United Nations, 400 international companies have signed this pledge, namely business ambition for 1.5 Degrees Celsius, and 13 companies among the 400 are property companies. And then we are the 3rd company in Asia following Swire Properties and also City Development Limited. And for the coming 10 years, we have already formulated renewable energy blueprint. And through self production, electricity purchase agreements and renewable energy certificates, we will enhance our utilization of renewable energy. We will also incorporate social elements into our talent strategy. And then concerning indirect carbon emission, this is about Hong Kong and Mainland tenants and also the impact from construction materials. So that's all about our results. Now let me pass the floor back to Doctor. Chang. Wright. Regarding New World Development, in terms of technology ecosystem, well, we have some very unique growth potentials. Our ecosystem covers 17 businesses with 400 odd working partners covering all elements of customers' life. So this can enhance our inner circulation. For our ecosystem, the system continues to expand and rise in value. Through high-tech, for example, our customer relationship management, CRM, k dollar reward system, For 40,000,000 members, we do customer data analysis and precise marketing in order to enhance repeat purchase. And this is only done by us. We have been doing that for a few years and now this ecosystem is already materializing. So from enhancing customer loyalty, we hope to increase cross selling. So if we look at the benchmark in 2020, the relative growth was 17x in cross selling. And this is also CAGR. This is in the form of CAGR. Now talking about our ecosystem, we have 14,000,000 customers, including retail, healthcare, housing, medical service and so on. So for our ecosystem, we have both hardware and software for cross selling and inner circulation. We have achieved a very high benchmark. Together with Internet Companies and Banks and other strategic partners, we will attract public domain traffic to our private domain. And comparing with other people, we are more outstanding because of our CRM and big data analytics technology, which have built a full and complete ecosystem covering all areas of life with our K dollar reward scheme and O2O platform, including K11 Go in China, our online platform and K11 app in Hong Kong, our customers and members of the public are given all around high quality spending opportunities and personalized service. We have been doing this for a few years. We are deepening our service. We have 4 tech pillars to improve customer experience. 1st, we use AI and big data to understand customers' preference to drive repeat purchase. Step 1, with CRM and big data, our internal data analytic team gather huge amount of information from the ecology to understand customer preference. Step 2, we use AI data to analyze and build customer database. Step 3, through K11 Go and K11 app, we enhance O2O experience. We do precise recommendation and also live streaming product to stimulate sales. K Dollar, KPOS are unique for us. This is step 4. We want to drive instant earn and burn. For K Dollar, people said that it is the same as other spending vouchers. No, it's not. K dollars can be regarded as currency. Comparing with other reward schemes, K dollars has 2 competitive advantages. Number 1, there is no earning limit. Number 2, there is no burning condition. So it is used as currency. It is very easy to use. KDollar achieved integration of platform and currency. It enhanced the cross selling opportunities between business units in the ecosystem. K dollar can increase the opportunity of repeat purchase or recurring spending. We have done a survey. After the launch of K dollar, For each K Dollar spending, it can generate 4 to 5 times of spending multiples for the group. Let me give an example. For Pavilion Farm, buyers have joined New World Club, and they get K Dollar rewards. And in 2021 FY, we plan to give out $100,000,000 And then in the coming 3 fiscal years, we will issue $300,000,000 Our group works with Cao Tai Folk Jewelry, and every year, we will issue $30,000,000 of K dollar. And 2 years later, we plan to issue a few times more. Now we talked about cross selling between insurance and retail. If we look at 2017 to 2019 comparing with 2020, that is the 3 year average comparing with 2020, cross selling amount has raised 17x has risen 17x. And then if you use 2020 as the benchmark, the relative growth was 4 times. And then if you look at overlapping members in the 1st year to the 5th year, while their CAGR was 35%. So they like you more with more overlapping. There will be more cross selling, and so spending will get higher and higher. In terms of technology, IoT Automation, we are doing a good job. First, residential. Among Hong Kong property developers, we are the first to offer smart home technology, especially in Mainland China among Hong Kong Enterprises. In China, we have launched new IoT system offering personalized and comfortable experience. We work with IoT companies, and then we offer high quality smart home technology and most advanced design and building options. And in the future, we will launch 13,000 units equipped with smart design in China for offices. We use robotic technology in cleansing and sanitization and also in the F and B business. So this can enhance efficiency and hygiene level and lower