Earnings Call: H1 2021

Feb 26, 2021

Good evening, everyone. Thank you for joining AWS Holdings Financial Year 2021 Interim Results Analyst Presentation. First of all, let me introduce our panel members. Mr. Gilbert Ho, Executive Director Mr. Jim Lam, our newly onboarded Senior Director of Finance Mr. Ben Wong, Director of Corporate Development and Investment and I'm Catherine, today's MC. Today, Gilbert will first walk you through the key highlights of our company's strategy, Then Jim will present to you the financial highlights, and Ben will explain the performance of individual business segment and then followed by the Q and A section. If you have any questions, please enter your questions into the text box on the left hand side of the screen. With the further ado, let me pass the time to Gilbert. Gilbert, please. Thank you very much, Katherine, and good afternoon, everyone. Welcome to NWS 2021 Interim Results and Analytics Presentations. Let me start with the strategic road map, what we have done over the last few years because I think it is very important that we actually look back what we have done to drive the value for shareholders by acquisitions, non core disposals and sustainable progressive dividends. If you look from 2018 January, we have disposed a number of our non core assets, including BCIA, a number of our ports, our transport business and most recently, in January, we disposed of our environmental business. We also have added some senior management team, which are more capital market focused to be more in line with our shareholders. In addition to non core disposals, we have done our business portfolio revamp for future growth, including the acquisitions of Feet. Life and a number of roles in China. We also redefined our businesses in the core business and strategic portfolio so that the investors will have a more clear roadmap of how we developed our business going forward. And more importantly, we have changed our dividend policy from the historical 50% paid out to a sustainable and progressive dividend policy, which is in line with our entire New World Group. So in the next page, you can see our business transformations. In 2018, our business were segmented into infrastructure and services, namely our roads, aviation, environment, logistics, construction, transport and facility management. Now in 2021, we have divided into core business, which is our road business, aviation, constructions and our insurance. And we have our strategic portfolio, which is our logistic and facility management. So I have already walked you through the key changes over the past 3 years. And I want to highlight that even though we have done a number of acquisitions in excess of over $2,700,000,000 we have maintained a very healthy gearing ratios of 26% as of the 31 December 2020. We have also disposed our businesses at relatively good valuations. Take an example, we have sold our transport business and our ferry business at the transport business at over 300 times PD and our ferry business at around 15 times. And the recent disposal of our environmental business at around 16 to 18 times. We have recouped it over around RMB 16,000,000,000 of cash throughout through our disposals. And with our acquisitions of Feet. Live and our Rose, we have accumulated AOP contributions of over $1,300,000,000 over the last few years. We'll continue our portfolio optimizations to further strengthen our own fundamentals. As you can see in the next page, our newly acquired business together with the disposed businesses have actually add altogether around $500,000,000 AOP net. And we have a very dynamic balance sheet with value crystallizations since 2018 with around $16,000,000,000 So in the next 3 years, we'll continue our transformations. We will look to future growth on our roles, modern logistics as well as our insurance. For our roles, we look to partners with SOEs and major PRC investors in China regional customers, including the Central China as well as the GBA. In modern logistics, we will invest in the traditional warehouses and also the most in demand co chain and also the technology and VAS relating to the logistics. This will focus also in China and we will also look into other regions such as the Southeast Asia. For insurance, we will continue to develop our own business and together with New World Development, we will enrich our customer base with the ecosystem to develop by New World Group. We will also focus our business development in the GBA area with the applications of the China license in near term. We'll continue to monitor opportunities to unlock value to continue our non core disposals. So in terms of the investments, some key investment criteria is it has to have strong growth prospect and also attractive risk adjusted returns. As with most projects NWIS has, we want to have solid recurring cash flow and as well as the income generated. Last but not least, we aim for high single digit to double digit return on capital deployed. Going back on our dividend policy. We started our sustainable and progressive dividend policy in 2019, supported by our very strong balance sheets. As you can see, we maintained our dividend for $0.29 in the first half of twenty twenty one. So some might ask when we will have a progressive dividend, meaning increase in our dividend. I want to answer all of you upfront. We will look at our dividend when we have a portfolio optimizations on the progress of our portfolio optimizations, also look at the business environment as well as the business growth as well as our AOP. Altogether, we will lead to the DPS growth going forward. I wouldn't go through the next page in details, but I would like to highlight to you the ample cash we have on hand of about $11,000,000,000 and also the unutilized committed bank facilities of over HKD18 billion. We have a very stable debt maturity profile with 17% of our debt will be matured in the 2nd year and after that will be 49% in the 3rd to 5th years. As I said, the net gain ratios dropped from 31% to 26% now. So I have talked enough about the transformation as well as what we will do going forward. I will take you through the business at the moment. As I said, our core business enrolled now Rose, which has 15 totals in China our Aviation business, Gaucho Aviation our construction business, which include Hipeng Group as well as our investment in Waikiki and our insurance, FD Live Insurance. In our strategic portfolio, we have our logistics, which include the ATL Logistics Center, CU IRC as well as the port in Xiamen. Facility Management, which include Hong Kong Convention Center, Glen Eagle Hospitals and Free Duty Shops. And the last one, which we considered as a discontinued operations, is our environment business, which is SUEZ and the RUN environment. So you can see in this page, we have actually have a very strong rebound with potentials yet to be fully reflected. In our growth business, we already see very strong rebound since the toll free assumptions. For Insurance, we are actually very well positioned for a strong rebound upon PRC border reopening. And in our aircraft leasing business, we already seen stabilizations in the airline operators with the support from the governments and also the financial market. And with the vaccine start to roll out, we will assume the travel will be resumed very soon. I will pass it on to Jim to give you some highlights on our financials. Sure. During the period, the revenue of the group increased by 26% year on year to RMB 14,200,000,000. The increase was driven mainly by the 2 6 month contribution from Apti Life during the period versus only 2 months of contribution in the same period last year. Total attributable operating profit or AOP of the group increased by 46% year on year to HKD3.3 billion. I will go through the AOP performance for each segment in a few moments. Despite the very robust growth in AOP during the period, we recorded certain non operating losses in the results totaling HKD2 billion. Such non operating losses mainly include: 1st, HKD1.33 billion remeasurement loss resulting from the reclassification of an investment to an asset held for sale second, our share of asset impairment loss and provision for expected credit loss from Gold Shock with an amount of HK416 1,000,000 And finally, a remeasurement loss of HK128 1,000,000 in association with the disposal of our stake in Suez, NWS and Durin environment. As you know, we cite an SPA to dispose our stake in these 2 associate and joint venture in January 2021. As a result, we have decided to reclassify such investment into asset held for sale at the end of December in 2020. Profit for the period was HKD903 million representing a decline of 50% year on year. Stripping out the distribution payable to the holders of perpetual capital securities, the profit attributable to the shareholders of the company was HK612 1,000,000 a decline of 60% year on year, which is consistent with our profit warning announcement published last month. The basic EPS was HKD0.16 a decline of 59% year on year. As Gilbert just highlighted, despite the fall in EPS, we have decided to maintain the interim EPS at 0 point 29 dollars which is the same as last year, which shows our commitment to the sustainable and progressive dividend policy supported by a very solid balance sheet. The adjusted EBITDA for the period was €3,000,000,000 dollars which represent a small decline of 4% year on year. In terms of the AOP performance by segment, the core business as a whole registered a 13% increase in AOP to HKD2.3 billion. And the strategic portfolio as a whole saw 3.2 times increase in AOP to HKD1 1,000,000,000. Within the core business segment, the insurance segment saw a 1.9 times increase in AOP to 462,000,000, which again was driven mainly by the full 6 month contribution of FTLIEF. For the Rose, due to the rapid traffic recovery after the resumption of the toll fee collection and the appreciation of the renminbi, it saw a 12% increase in AOP to 1,000,000,000. During the period, the total income of our portfolio increased by approximately 8% and the renminbi appreciated by an average of 3% to 4% during the period. Within the strategic portfolio, the strategic investment segment registered the strongest increase of 14 times increase in AOP to £752,000,000 which was driven mainly by the increase in fair values of some of our investment due to a buoyant stock market as well as the strong AOP recovery of some of our investee company including Theresa and Heather. I will pass over to Ben to walk you through the operational performance of each segment. Thank you very much. I will quickly walk you through the various segments. First, start off with Roads. We have seen swift recovery with positive outlook with AOP increasing 12% year on year with our traffic volume up 9%. And as we previously discussed, we are still discussing with the government on the compensation measures for the TOE fee exemption that we have extended last year. And for the outlook, we continue to look for new opportunities, including distressed opportunities and opportunities with good growth prospects in areas such as Central China and GBA. And we are also keen to look for partners such as SOEs and major PRC investors in the road section. Looking into Aviation, we have seen signs of stabilization, such as if you look at our AOP contribution year on year, it's up 1%. And if you look into the industry as a whole, we have seen stabilization regarding air travel bubbles and various support from the government and also financial market on the funding side. In terms of the collection rate, we have seen collection rate stabilizing at 76%. And if you look if you break down further details, 2nd quarter was at 68% and Q4 was at 82%. And in terms of aircraft utilization rate, it's at 99%. So in terms of outlook, with the vaccination and rollout campaigns around the globe are set to enhance confidence in international and domestic travel, and we remain cautious and prepared for recovery. In the construction segment, we have seen AOP decreasing year on year 21%, mainly due to less gross profit recognition for the first half. But in terms of the full year, we remain confident it will be on track. And if you look into the new contracts awarded for the first half of twenty twenty one, we have seen $1,000,000,000 new contracts coming in. And again, looking at our portfolio, we have seen a well balanced portfolio and sources of project with 64% private and 36% government. And for the outlook, we remain positive over the mid to long term, particularly support and strong demand from the government and private sector and hit Ping's first rate track record. And we have also utilized new construction technology to mitigate some of the margin pressures that we can be a bit more efficient in terms of managing our projects. Looking into our insurance sector, it has delivered consistent performance and with potential yet to be fully realized. As Jim had mentioned, the segment AOP is up 1.8 times to $462,000,000 with the full period contribution year over year. And if you look into our market our performance against market, clearly, Feet. Life has outperformed the market in terms of APE, particularly in as we have seen in Q3 and also the Hong Kong business. Looking into our solvency, it's still very strong, again, well above the minimum requirement of 150 percent at 5 53%. We have seen the embedded value growing 16% to $20,000,000,000 And in terms of agents, it's still above $3,000,000 So on the outlook with the raising awareness on healthcare insurance protection, it presents a lot of growth opportunities. And if you look into the MCV of our customers, we are well positioned for growth when the border reopens. Looking into the strategic portfolio, in terms of logistics, we continue to hold very unique and resilient unique assets and resilient business. If you look at the AOP, it remains stable. If you look at our crown jewel ATL Logistics Center, it has delivered strong performance and almost fully occupied at a very stable and average rent growth at 1%, despite a very difficult market. CURC has recorded remarkable throughput growth 30% and also AOP growth at 41%. Our new Guangzhou terminal is under construction and is expected to commence operation in 2021. And if you look at the ports in Xiamen, AOP was down 8% due to the changes in the mix with cargo and more transshipment. So all in all, in terms of outlook, business is expected to remain strong. We continue to seek opportunity to further invest into modern logistics to capitalize on the rapid demand in logistics under the new economy. In terms of facility management, we have continued to put up efforts to improve the business performance. If you look in terms of our AOP, it has improved 11% year on year. And if you look at our GHK, it's ramping up rapidly and AOL has narrowed. Our outpatient and inpatient up 18% 31%, with our increased effort in marketing and also relocating our service center to Newark Tower in Central, partnering with another telecom giant, rolling out the virtual outpatient clinic via Doctor. Go. And we have also seen regularly utilized beds up from 190 beds to 204 beds. In terms of CEC, our convention center, unfortunately it has reversed from an AOP position to AOL position due to the COVID and the stringent measures, social distancing measures. But we have with the improvement of the COVID situation, we have seen some gradual recovery of certain events coming back. So, we're looking forward to, once the social distancing measures relaxing, our performance should recover swiftly. In terms of free duty, 3 outlets remains closed and we have also implemented stringent austerity measures to reduce our AOL. In terms of the outlook, we are well positioned for a border reopening and ready to capture opportunities once the cross border travel resumes. In terms of environment, as explained by Gilbert earlier, we have announced disposal of Suez NWS and Durham Environment at a premium valuation. And if you look into the for fee, the solar panel in solar farms in Italy, it will be reclassified into strategic investment going forward. So in terms of our segments, we should have 1 less segments going forward to improve hopefully more clarity for the investors, our strategic planning going forward. And in terms of ESG, we continue to focus on ESG and try to improve our disclosure as well as more ESG focus. As you can see, we have won the best Corporate Governance Award of 2020 by the HKI CPA. We continue to uphold a very high rating overall AA plus under the Hang Seng Corporate Sustainability Index. And in terms of sustainability financing, we have recently just announced our sustainability linked loan with Bank of America for HK1 $1,000,000,000 Some of our key initiatives for the climate resilient measures such as initiated transition risk assessment towards low carbon economy in 2021. We have also, as just explained, we have our 2nd sustaining lending loan with Bank of America for $1,000,000,000 So we remain committed to our ESG initiatives and align with New World Group's ESG measures. And for that, we will conclude our presentation at the moment and then we will go to Q and A.