Earnings Call: H2 2021

Sep 30, 2021

Good evening, ladies and gentlemen. Thank you for joining NWIS Holdings Financial Year 2021 Final Results and its presentation. First of all, let me introduce our panel members: Mr. Gilbert Ho, Executive Director Mr. Jim Lam, our Chief Financial Officer and Mr. Ben Wong, General Manager of Corporate Development and Investment and Catherine, today's MC. For today's agenda, Gilbert will first walk you through the key highlights of our company's results and strategy. After this, Jim will present to you the financial highlights, and then Ben will cover the performance of individual business segment and then followed by the Q and A session. If you have any questions, please enter your questions into the text box on the left hand side of the screen or click the Ask a Question button at the top right corner. With further ado, let me pass the time to Gilbert. Gilbert, please? Thank you, Katherine. Good afternoon, everyone. Welcome to NWIS' annual results Analyst Presentation 2021. Let me first give you a very brief review of our business portfolio. As all of you probably have followed us for a few years already, we have embarked on a journey of simplifying our business portfolio. And for this year, we have yielded some results, and I would like to present to you a very simplified business portfolio that we have now. As you can see from the pictures now, within our core business, we have our roles, our aviation, constructions and insurance. And within our strategic portfolio, we have Logistics and Facility Management. This compares to a few years ago, is a lot more simplified and with very clear business visions. As I just mentioned, since 2018, we have embarked on a journey of transformations. We have acquired FT Life, 3 expressways in central regions and as well as a number of different businesses at a total considerations of over $28,000,000,000 At the same time, we have disposed a number of non core assets, mainly imports, transport and environment, with a total considerations of JPY 20,000,000,000. This significant progress we have achieved have maintained our gearing ratios at 25%, with a simplified business portfolio and actually support our sustainable and progressive dividend policies. In doing our acquisitions and disposals, we have actually maintained a very healthy transactions valuations. If you look at the left hand side of the screen, our major acquisitions, including Feet. Life and Rose. For Feet. Life, as you can see, our PB when we acquired was 1.5 times. That compares to the PA average of 3.5 times. And in 2021 financial year, it contributes already 90% of our AOP. And compared to the first half of twenty twenty, the embedded value increased 26% already. For the 3 roles we acquired, it already contribute over 10% of our AOP in our roles segment. On the right hand side of the screens, you can look at the major disposals. In fact, all of the disposals has achieved a premium valuations over our peers. Just take a few examples in our bus disposals. The PES average was 25.8 times, whereas our PED when we disposed was 360 times. And the most recent disposal, which is Xiamen Port, we dispose at a PE ratios of 17 times, whereas the peer average is around 7 times. Our business strategies is actually to achieve sustainable long term growth. So how we do it is by growing our core businesses. So you can see at this moment, the core business contributed around 81% of our total AOP. And this AOP grew 34% year on year compared to 2020. In our Road segments, the rapid economic growth in China and the car ownership growth actually boost our Road segments AOP. This also will enable us to do expansions via continuous M and A. While business traveling are still on hold for most of the international travelers, We still maintain a long term growth on the business and leisure travel demand. And we remain very optimistic about opening up of the borders. And you can and we can actually see that the number of new airlines already opened up during this season. So we have very strong confidence on the long term growth of this Aviation segment. In Constructions, more projects is coming from the Hong Kong government and the private sectors. And recent sizable land auctions in Central and Causeway Bay is a sign of pickup in confidence. And in Insurance, improved branding and attractive product actually gained attractions of Feet. Live. Our business actually have been outperformed the industry average since acquisitions. So in terms of future capital deployment, we will focus on our partnership with SOE and major Mainland investors in our growth segments in continuous M and A. We will also look for acquisitions in the logistics sector in warehouse, cold chain, technology and integrated service provider in the mainland and also in Southeast Asia. And needless to say, we'll continue to deploy capital in insurance to expand in mainland with GBA focus. Same as last few years, our key investment selection criteria is to have strong growth prospect and attractive risk adjusted returns. Solid recurring cash flow is our major focus as well. We will target at least single high digit return on our capital deployed. Meanwhile, you can see our business has still have potentials to maintain the full refund after COVID is gone. Just to name a few. In Insurance, in the first half of twenty twenty one, our overall APE and Hong Kong business grew 27% and 49% already. And this has yet to include the mainland visitors. Up trending in interest rate will also benefit our insurance company. At the very moment, our Hong Kong Convention Center as well as our free beauty business free duty business is still affected by COVID and closing of the borders. So this will definitely be well positioned to catch the rebound after the border reopened. For our Glen Eagle Hospitals, even during COVID time, we have achieved our EBITDA breakeven since May, which is well ahead of our budget. This proved the improved brand recognitions to attract mainland visitors after the border reopened. This slide, you can actually see our dividend history. Since 2019, we have changed our dividend policy to a sustainable and progressive dividend policy on absolute DPS. This year is the first sign of delivering progressive dividend even in the midst of COVID. Our dividend of 0.30 dollars represent around 3.4% increase versus 2020. So all of the above can give us the conclusion that we will maintain an enhanced earning qualities and DBS growth. I'll pass on to Jim to give you some financial highlights of this year's performance. Thank you, Gilbert. We are pleased to announce that in fiscal 2021, the group recorded a 25% increase in revenue to RMB28.2 billion with a 49% increase in AOP to HK5.2 billion. We'll go through the segment performance in the next slide. During the year, the group recorded non operating losses totaling HKD2.6 billion, which include, firstly, dollars 1,370,000,000 remeasurement loss on our WhiteKey shareholding, which have already been included in our interim results this year. 2nd, R553 1,000,000 asset impairment costs and expected credit loss provision from GaugeShark. Note that there was a very strong sequential improvement if you compare the second half provision with the first half. During the second half of fiscal twenty twenty one, we only made additional provision of about RMB137 1,000,000 as compared with RMB460 1,000,000 in the first half. The remaining balance of the non operating losses represent mainly our re measurement loss or provisioned on our other investments such as the Ren environment, which was disposed off in May this year. Finance cost was down 34% year on year to RMB483 1,000,000 thanks mainly to the significant drop in HIBOR as well as the lower Hong Kong dollar loan balance. Expenses was down 11% to $436,000,000 driven mainly by our group's very stringent cost control measures. Overall, we recorded 3.5 times increase in profit attributable to shareholders or HKD1.1 billion. Basic earnings per share was HKD0.29 HKD0.29 The Board approved 3% increase in FIDO dividend per share this morning to 0 point 3 zero dollars which bring our full year DPS to 0 point 5 $9 which based on the closing price today of $7.21 this implies a dividend yield of about 8%. Adjusted EBITDA which is a proxy of the group's operating cash flow of this year increased 19% year on year to HKD5.6 billion. Moving on to the performance by segment on page 11. In terms of the core business, the AOP increased by 34% year on year to RMB4.2 billion and the strategic portfolios AOP increased by 1.7 times to RMB1 1,000,000,000 Within the core businesses, ROLs AOP increased the most by about 99% year on year to HKD1.8 billion, which was strengthened mainly by the rapid traffic recovery after the resumption of the toll fee collection policy in May 2020. The insurance business increased by sorry, the AOP of the insurance business increased by about 29% year on year to RMB572 1,000,000 driven mainly by the full year contribution from Efty Life after the completion of the acquisition of Efty Life in November in 2019. Aviation's AOP increased by 18% year on year to R496 1,000,000 which was driven mainly by the mark to market gain on the interest rates swap of about RMB51 1,000,000 versus the loss in last year. So if you strip out the impact of the mark to market gain on losses, the underlying aircraft leasing business AOP was down about 22% year on year in this year because of the airline restructuring. Construction business was down 11%, mainly due to the fact that we have ceased to equity account for the profit of our YK shareholding since December 2020. With regards to the strategic portfolio businesses, the strategic investments, AOP increased the most by about 2 times year on year to HKD739 million, which was driven mainly by the increased contribution from our JV and associated company investment as well as the increase in fair value of our various investment because of the buoyant market conditions. AOP from the facility management sorry AO loss from the facility management narrowed by 16% to RMB649 1,000,000. Within that, both free duty as well as Graw, Ganigo Hospital saw a layering of AOL, where the AOL of Hong Kong CEC increased because of the COVID-nineteen. I will pass on to Ben to talk about our business performance in more details. Thank you, Jim. I will take this opportunity to walk you through some of our core businesses as well as our strategic portfolio. For our roads portfolio, we have seen swift recovery. If you look in table in the middle, compared to 2020 and also FY 2019, we have significant increase in volume and also in terms of traffic. And if you look into the 3 expressways that we acquired over the past few years in the central region, we have seen pickup in contribution on the roads AOP, which contributes over 10%. We are also in discussion with governments on the compensation measures for the toll fee exemption that took place last year. And for the outlook, if you look on the right hand side, those are the rendering of the premium service area that we have developed, which is planning to be launched in the next couple of months at our Hangzhou Ring Road, which is the one of our premium roads and also our crown jewel within the roads portfolio. And this also gives us a platform to potentially launch premium service centers in other toros that we operate and also potentially to link up with other Toro operators to expand and increase our source of income. Moving on to aviation, we have seen our lessees benefiting from the global rollout of vaccination, gradual assumption of domestic and also regional flights, formation of travel bubble programs as well as relaxation of travel restrictions in between different countries. And if you look at in terms of the rental deferrals that the requests that we have seen have gradually decreased as well as the deferral and the rental payment continued to be repaid. And if you look at our collection rate, we stand at 92% in the Q2 of 2021 relative to Q4 of 2020 at 82% and significant improvement from the worst 2020 Q2 at 68%. And we have also seen strong financial footing having a record high cash and undrawn liquidity at the Gaussock level to support our financials. And we are also expanding our asset management service to potentially expand our source of income. In terms of construction, this year, our AOP has dropped 11%, but that is mainly due to the 6 months pickup from Waikii rather than 12 months in the last fiscal year. Excluding Waikii, Heping Group's AOP is up 6%. And if you look at the new contracts awarded, we have RMB7 1,000,000,000. And in terms of our contract on hand, we're at 49,000,000,000 and with a 28,000,000,000 backlog. In terms of the usage of technology, we have efficient we have now used the modular construction for a number of our projects. And if you look into the right hand side, the Innosau project and also the quarantine facility at Penny Bay are exemplary and very good examples of how we used it to minimize waste reduction, to be more efficient in terms of the building and also shortening the time that's required. In terms of the type of projects, we currently sit at 70% private, 30% government and institution and all of these are external works that we have done for government, institution as well as private companies and corporates. We're still very much optimistic about the long term outlook of construction picking up and we have seen pickup in demand from the government and also the private sector. And we are also adopting new technologies to improve efficiency as well as to mitigate some of our cost pressure. Moving on to insurance. The AOPs for the segment is up 29%. This year, we have launched a new brand strategy, Think Beyond Insurance. And if you look at our performance in the Hong Kong domestic business, it's up 49%. So all in all, if you look into the AP overall, we have consistently outperformed the market average. And from the market standpoint, market ranking standpoint, we are up at 12 from last year's 13th. And I think one thing to note is the embedded value. Since our completion of the acquisition of FT Life, it has been up 26% and year over year we're up 21%. So that has also demonstrated our flexible business strategy and also adjusting to unexpected events such as COVID and border closure. I'll now move on to the strategic portfolio. For logistics, we have seen ATL Logistics Center to continue to perform very well, occupancy at 99.7% with an average rent up 1%. And in terms of CU IRC, our AOP is up 63% year over year, benefiting from further development of rail, intermodal transportation, international block train. And for Xiamen Container Terminal, one thing to note is we have signed a the SPA as disclosed in August 2021 and for the proposed disposal of the 20% of our stake at for RMB15 1,000,000,000 RMB1.5 billion. Outlook for the logistics, we will continue to deploy more capital in terms of modern logistics as well as if you look at the positioning of ATL, it still continue to command a very strong positioning in high quality large scale warehouse in Hong Kong and definitely has benefit from the solid demand for our service. Moving on to Facility Management, the AOP for the segment is up 16% and I think we have seen the AOP AOL narrowing and also bottoming out. In terms of the individual businesses for the Glenigle Hong Kong Hospital, ALL further narrowed and EBITDA breakeven since May. And also for the Central Clinic, we have seen the breakeven since July. And if in terms of the utilized beds, we're up to 210 regularly utilized beds. For HKCEC, we have seen some improvements in the second half of 2021, although it has been very much affected by COVID for the first half, particularly with the restrictions for COVID. So we look forward to the next few months as the restrictions on travel relaxes. And for free duty, the 3 outlets remain closed, and we have new business initiatives such as pop up stores at Deepak, at Forest and also our new e commerce website, FD Mall. And in conclusion, for the strategic portfolio, we have disposed our environment business and we have completed the disposal of the environment in May and we expect the disposal of COS and AWS to be completed in 2022. And we have commanded an attractive evaluation at our for the disposal of both businesses. I'll take a few minutes also to walk you through some of the ESG initiatives that we have carried out this year. Again, going back to our ESG initiatives, we target wellness, caring, green and smart. And you have seen a wide range of recognitions from various professional parties such as the Hsieh, ICPA giving us a corporate governance award. We have achieved overall rating AA plus with the Hang Seng Corporate Sustainability Index. And we have seen improvements by various rating agents such as MSCI, FTSE. And this really has sums up in terms of the ESG performance and also the initiatives, we are not only looking at very narrow areas, but implementing across a wide coverage in terms of governance, in terms of environment as well as taking care of our stakeholders. This year, we have also signed on sustainability financing with a total of 3,800,000,000 as of June 31 June 30, 2021. In terms of our environmental targets, we continue to push on a few key targets such as carbon intensity, energy intensity, water intensity and as well as social targets that looks into wellness and also caring and all of those metrics are on track. To highlight the few the very key initiatives in place, we have completed our 1st climate related transition risk assessment towards low carbon economy in 2021, sustainability linked loans, which will continue to give us extra financial incentives to upkeep and also push our limits on the ESG side. And we are also implementing various ESG consideration and measures as an investors, phasing an investment relating to coal, fire power and also adopting ESG considerations for our future investments. And the newly launched to be launched service center is also a very good example of how we combine business and also ESG. We have used a lot of technologies to take care of our customers. We have unmanned convenience stores. We have various environment related measures to upkeep our ESG side of things. And if you look into Ping, we also have implemented a few things such as the building information management system and also the MIC, which has been widely received by various professional parties and have received multiple rewards and recognition from industry wide associations. And last but not least, FT Life Insurance, we have received various awards from different parties, essentially recognizing and validating our view and also how we are taking care and also extending grace periods for some of our products and also while providing wellness protection during COVID. And I think this is a quick wrap up on our presentation. Thank you.