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Edited Transcript of 1113.HK earnings conference call or presentation 1-Aug-19 8:45am GMT

Half Year 2019 CK Asset Holdings Ltd Earnings Presentation

Aug 4, 2019 (Thomson StreetEvents) -- Edited Transcript of CK Asset Holdings Ltd earnings conference call or presentation Thursday, August 1, 2019 at 8:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ka Keung Man

CK Asset Holdings Limited - General Manager of Accounts Department

* Lai Chee Ma

CK Asset Holdings Limited - General Manager of Corporate Business Development Department

* Tak Chuen Ip

CK Asset Holdings Limited - Deputy MD & Executive Director

* Tzar Kuoi Li

CK Asset Holdings Limited - Chairman & MD

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Conference Call Participants

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* K.C. Ng

Macquarie Research - Analyst

* Ken Yeung

Citigroup Inc, Research Division - Director

* Sarah Cooper

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Presentation

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [1]

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Welcome to our 2019 interim results announcements. Let's get right to it.

Revenues for the first half 2019 came to HKD 34 billion, up 41%. The number that I would like everyone to focus on is the earnings per share before IP revaluation and disposal, $3.80, up 17% as we purchased some shares last year. Dividend per share, $0.52, up 10.6%. Profit before our IP reval and disposal, $14 billion. Profit attributable to shareholders, $15 billion. Earnings per share, $4.1. Net book value per share as of end of June 2019 came to $90.08.

Now turning to activity analysis. 51% of our profit contribution is now recurrent in nature. In 2019, profit contribution by principal activities came to $7.885 billion. Another number that I would like you to take a look at is if you annualize our recurrent cash flow from operations, excluding property sales and development, so just recurrent cash flow from operations, on an annualized basis, it has now exceeded HKD 18 billion. So it's just a number that I'd like you to keep in your mind.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [2]

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The recurring income section has grown quite a bit over the years. So this includes infrastructure, aircraft leasing, hotel division, which is growing very nicely. So all those things put together, it's -- operational cash flow on an annual basis is about $4.80 per share?

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [3]

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Yes.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [4]

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And also, remember, we purchased some shares. So if you compare year-to-year, you have to exclude the shares that we have extinguished. So the number of shares that is used is different in different years.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [5]

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So as you know, there's quite a bit of depreciation in hotels and aircraft leasing, but a lot of cash coming in, actually.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [6]

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Yes. This is cash, not EBIT, EBITDA, whatever. The new IFRS 15, 16, get everybody confused. I want to go back to simple cash.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [7]

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About 24% of our profit contribution in the first half of 2019 came from overseas. We have a pretty decent diversification and contribution now. You see it's 34% from last year, but remember, last year in the first half, we only had 500 units of property sales booking in the first half. So that's a bit skewed.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [8]

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If I may, when I read from endless reports earlier, some of you, because last year, for the same period, there are 2 major transactions: one is the development in Shanghai, which gives us almost $7 billion of profit; and the sale of the center, which gives us about $11.8 billion. But in our books, the $11.7 billion is seen as a one-off event, but the $6.9 billion, we look at as an ordinary activity. That's why the percentage increase is different in our version compared to other people's version, just to clarify. Because some -- I think some press got it, include those 2 as exceptional.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [9]

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Turning to the performance of each of the divisions. Property sales. In the first half, we were able to recognize a much more -- a more significant contribution from this division. 39.2% margin is -- I would say is above our usual expectation. So this division has done really well in the first half.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [10]

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And this first half has no special deals. So it's all ordinary -- as ordinary as can be, ordinary income.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [11]

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1,109 units were booked in Hong Kong, 635 residential units plus 358 commercial units booked from the Mainland division and only 3 units from the U.K. was booked in the first half. As you can see, the margin by geography, Hong Kong, 42.4%, really, really, really good margins and pretty steady on the Mainland. And the dip in the overseas division is mainly because we only booked 3 units and had some one-off expenses.

Phase 1 and Phase 2 of the Tsuen Wan (inaudible) project gave us over $4.1 billion of contribution, $977 million from Repulse Bay Road. And The Zumurud gave us $887 million. There's still $53.5 billion of contracted sales that we have not yet recognized. And roughly, very roughly, about $40 billion is scheduled for recognition in 2019, mostly from Hong Kong.

Turning to property rentals. Good performance from our office and retail IPs as well as contribution from our newly acquired offices in the U.K. and Ireland have successfully neutralized the loss of income from the sale of the center and the redevelopment of Hutchison House and with very good -- achieving very good margins as well. The biggest contribution, of course, is from this building, $816 million.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [12]

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And we should start calling it Cheung Kong Center Phase 2.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [13]

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$438 million from Whampoa Garden and $301 million from Hutchison Logistics Center. We have a total of 17 million square feet of investment properties across mainly Hong Kong, the Mainland and the U.K. A modest fair value -- fair value adjustment in investment properties of just over $1 billion. This is mainly from Cheung Kong Center, and on our books now, after revaluation, it's just over $26,000 per square foot, for your information.

Hotels and serviced suites, 36.9%, a very healthy margin, $876 million of contribution in the first half. That's on the hotel operating profit per square foot perspective is $23 per square foot per month. The annualized yield on carrying value is 21%. The Mainland hotel team, still trying to mitigate the operating loss for the 2 remaining hotels that we have -- we own, conditions are still rather difficult. Overall, $876 million of profit contribution.

Approximately 15,000 attributable hotel rooms and service suites. In the first half, average occupancy rate of 89.5%. And the soft opening of Hotel Alexandra, 840 room hotels in North Point will -- should take place in early 2020. Steady performer, as always, from our project management and property management unit.

Aircraft leasing $717 million profit contribution. The 46.1% is on the high side. We booked a bit of a disposal gain from our joint venture unit. The normal margin, as I stated many times before, is around 40%. A good mix of geography, all continents, for this division. We now have 135 aircraft owned; average age, 5.7 years; average remaining lease term, 4.9 years.

Infrastructure and utility assets operation. The changes in the Hong Kong dollar exchange rates versus euros -- versus the euros, Canadian dollar and Aussie dollars have affected the Hong Kong dollar denominated reported income a bit. As you know, these currencies against the Hong Kong dollar depreciated from anywhere from 4% to 8% compared to last year. But the contribution still very decent, overall, HKD 2.5 billion.

In general, DUET is doing slightly better than our expectation. A change in depreciation policy last year will keep EBIT margin around or close to 40%. Reliance is largely on plan with steady improvement. ista, to be honest, is slightly behind plan as we are still rationalizing operations to focus mainly on the 7 countries that we -- that the company is pretty dominant in.

And I believe the next few pages, I'm turning over to Simon.

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Ka Keung Man, CK Asset Holdings Limited - General Manager of Accounts Department [14]

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Well, thanks, Gerald. The group continued to hold interest in 3 listed REITs: 32.2% in Hui Xian REIT, which holds 11.8 million square feet of properties on the Mainland for rental income; and 27.2% in Fortune REIT, which holds 3 million square feet of retail commercial properties in Hong Kong for rental income; 18.4% in Prosperity REIT, which holds about 1.3 million square feet of commercial office properties in Hong Kong for rental income. And reported profit for the period amounted to HKD 322 million, which make up of our equity share of the profit of Hui Xian REIT $166 million and cash distribution received from Fortune REIT and Prosperity REIT $156 million, whereas distribution from Hui Xian REIT amounted to $260 million. This gave us the overall total distribution from all the 3 REITs, $416 million.

Next page with kind of gearing and maturity profile. At 30 of June, 2019, the group has a total debt of $61.2 billion. $3.7 billion will be due within 1 year; $51.3 billion will be due between 2 to 5 years; and $6.2 billion will be due beyond 5 years. And cash on hand amounted to $59.4 billion. This give us a net debt of $1.8 billion as at the interim period end date.

If we take the net debt to the shareholders' fund or net total capital, both ratio will give approximately 0.5% only. Our current corporate rating from Moody's, A2 (Stable). And from Standard & Poor, A (Stable).

Regarding our total land bank at 30 of June, 2019, is a total of 127 million square feet. And we have already taken out the projects that we have completed. And there are still some almost 2 million square feet completed properties, the sales of which still yet to be recognized either in the second half year or next year.

We have about 101 million square feet under development, 17 million square feet of investment properties, 9 million square feet of hotels and serviced suites.

And during the first half year, we have paid premium for our Yau Tong Inland Lot Number 45 project, which would increase our development land bank fill by some more than 400,000 square feet.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [15]

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So I hope you were positively surprised by our results. We are now ready for your questions.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [16]

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Please?

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Questions and Answers

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [1]

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The mic's coming up. Please.

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Sarah Cooper, [2]

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Sarah from Merrill Lynch. Congratulations on a good result. You've got now more than 50% of profit from recurring nature; 24% profit coming from offshore, which, right now, is looking exceptionally wise. I think shareholders really appreciate the impact to earnings per share from the buyback. You have negligible debt. So I was wondering, Victor, if you could give us your outlook for the major markets in terms of the opportunity, so the outlook in terms of opportunities in the major markets that you're operating in? And then how that would compare to the opportunity in your stock at the moment? And also, where we might see offshore and recurring income in a couple of years' time?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [3]

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Hong Kong property market will continue to be volatile and cyclical. So -- but that's our oldest business. So it's something that we'll continue to do. But at the same time, we would increase our recurring income base. I think this $4.80 per share maybe -- of cash flow from operations, it's -- we've achieved our recent target, but I want to increase that further.

We do have the muscle to increase further. We are very low geared. So as -- also, as we increase the recurring income base, give us more stability and more base to increase dividends because it's more stable, rather than simple property development. If it's cyclical in nature, it's very difficult to base a dividend cash flow stream from property development. But that's still part of our traditional business that we'll continue.

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Sarah Cooper, [4]

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Could we take it to 75%?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [5]

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I don't have an exact percentage. I think this is the beauty of CK because at any time when, let's say, Hong Kong has special opportunity, then we get multiple property very easily without increasing debt. At the same time, when we're making acquisitions on recurring income projects, they are rather large, I call them lumpy. The minimum size is usually a few billion dollars or euro or part. A few billion is the minimum entry. And the larger it is, the better the opportunity for companies like ourselves, CK, with the experience and the muscle to handle. So we'll continue on both. It really depends on how the opportunities unfold itself.

And China, it will continue to be an important market for us, too. And from time to time, people ask us questions as to whether we're increasing or decreasing China's investment. My reply is that it's really IRR based, we're rather impartial on that. Don't forget, if you look at the whole CK group, I think amongst Hong Kong-based companies, we should be Chinese among them, where we should be the largest investor going to China, still the largest. So sometimes it goes up; sometimes it comes down, but we're still the largest.

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Ken Yeung, Citigroup Inc, Research Division - Director [6]

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It's Ken from Citi. Can I ask regarding the basis for you increasing the interim dividend since quite generous, 10%? Is it because what your first mentioned regarding the operational cash flow, $18 billion, is there linkage to that part? So this is the first question.

Second…

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [7]

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Sorry, let me understand correctly. What we're saying is that cash flow from operation is now $4.80 per year. We are now having a dividend of $0.52 for the half year, which gives us very good security base. If we increase further recurring income, then we'll give more dividends.

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Ken Yeung, Citigroup Inc, Research Division - Director [8]

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Is it that is [PAC] or the…

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [9]

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That is the…

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Ken Yeung, Citigroup Inc, Research Division - Director [10]

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I mean in correlations in the same manner that you're regarding your growth of the [PAC] with your cash flow.

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Tak Chuen Ip, CK Asset Holdings Limited - Deputy MD & Executive Director [11]

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Capital ratio or something?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [12]

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Well, I don't want to buy myself. Look, CK we will always be seizing new opportunities. So I'm not a REIT -- we're not a REIT. We're not a utility company. But we deliver the cash flow for a stable dividend stream as well as the muscle for new acquisitions in both property and acquisitions of recurrent income [newcos] with the Hong Kong and China overseas.

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Ken Yeung, Citigroup Inc, Research Division - Director [13]

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So as mentioned, the war chest, you are quite large regarding the gearing. How do you see the opportunity? Because in -- the first half seems to be quite quiet in terms of the kind of recurring income asset acquisition. So do we see more opportunity in the second half?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [14]

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You're trying to ask me to make predictions. Whenever these -- whether its property or whether its these new acquisitions, I can't find another word other than that they're lumpy. So if today you have a USD 7 billion deal or euro deal, it would be easier for us to handle than a $2 billion deal because we have fewer competition. But then, I cannot do this on a 6-months basis. These things don't happen every 6 months. They happen every 18 months, but you have to have enough money in order to make these acquisitions. And the larger it is, the less predictable. Yes.

But in the meantime, we've already achieved what we set out to achieve, which is even if we do nothing, there's $4.80 that's sitting there. And whatever happens, we'll be on top of that.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [15]

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Rest assured, we are all working very hard to continue to build up our recurring income base.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [16]

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All executives want to help me invest that money. So we won't be sitting still.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [17]

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I would encourage you to ask more questions. Don't wait until the second session.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [18]

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What is the second session? After I'm gone?

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [19]

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Simon and I will...

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [20]

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Okay.

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Unidentified Analyst, [21]

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Clearly, it's an interesting time in Hong Kong at the moment, and your company has a history of acquiring in periods of volatility very well. I wonder if you have any observations on the current environment; or if you're seeing any changes in the market that might indicate that there are more opportunities on the horizon; or if you would be taking a wait-and-see approach still?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [22]

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I wish you can have frank conversations on this, but this is something that I should keep close to my chest. And you don't see me coming. That's the whole point about buying and selling. Property is buying and selling. My job is to have a very, very good poker face. I'm sorry, that's my job description. Hopefully, we buy without people knowing that we're buying or sell without people knowing that we're selling. That's our job. But property's about buying and selling. It must be. So be it China or Hong Kong, but this is our operation base. So sometimes it goes up, sometimes goes down, but this is home base.

In the meantime, even if we're not [speculating,] there's that, the income -- steady income stream to keep things going. Please?

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K.C. Ng, Macquarie Research - Analyst [23]

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It's David from Macquarie. I guess, a quick question on the purchase of the economic benefits, 40% stake from, I guess, CK Hutch, a -- quite a different arrangement, I guess, in terms of basically collecting the interest income and dividend income rather than taking a direct equity stake in these projects. Is it kind of like a one-off strategy? Or will we see more of this type of arrangement, especially in between the different…

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [24]

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It's really logistics. There's no special reason for it other than the logistics and the ease of concluding it. It's technicalities, various regulatory, tax rating, a whole lot of things, but it's really the formalities of closing the deal and to make it happen in a short time. It's a really individual circumstance. And we just line up where the equity is and where each company should focus on business they're good at.

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K.C. Ng, Macquarie Research - Analyst [25]

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And the occurrence of this transaction, is it on the back of the difficulty of acquiring something externally? Like is this something like there's always kind of a Plan B that you've attractive opportunities not available outside and there is always opportunity that you can purchase, maybe from CK Hutch or the other...

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [26]

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No, because I think our appetite is much larger than that. That one deal, I can't call it small, that would be too proud of me, but there's one deal, that one deal doesn't satisfy CKA's appetite. We're looking at much -- it's one of the many. So cannot be a strategy.

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K.C. Ng, Macquarie Research - Analyst [27]

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And just one question on Hong Kong property…

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [28]

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You look at our balance sheet and what we can do. Relatively speaking, I can't say it's small, but relatively speaking, that's small.

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Tak Chuen Ip, CK Asset Holdings Limited - Deputy MD & Executive Director [29]

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If I remember correctly, there's a bit of a win-win between the 2 parties. We have lots of cash in Hutchison. Clearly, the gearing is a little bit higher. And don't forget they did the Italian deal. So they wanted to reduce the gearing as well. That's why we needed to do a deal on a timely basis. And that's why we do the kind of interest.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [30]

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It's that a deal with the existing partners? We're already the partner, existing partners by the other partners, so that this management can concentrate on the larger share. It just makes sense, that's all.

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K.C. Ng, Macquarie Research - Analyst [31]

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And just one quick question on Hong Kong property. We do have some -- you guys still have some major project lining up, which we have seen in the media that promotion has happened, but the presales permit hasn't been obtained yet. Is it a reflection of something structurally with the government that the -- some delay in terms of issuing permit, much slower than what you experienced maybe in the past 2 years?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [32]

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No project construction is very individual. So -- and getting sales permit today is a whole logistic process. So which form you submit, at what time, what people come to see you, really fire, safety, all those things. So it's not unusual. It's not unusual. It's the same as what we've happened before. I wish it happened faster, so that we can deliver more flats to the market, but we've seen those before; nothing unusual.

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K.C. Ng, Macquarie Research - Analyst [33]

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And if you don't mind, one final question. On the other high-end luxury project on Borrett Road, which you have already obtained a presales permit, but the launch hasn't happened yet. Is it just because it's a luxury project that you rather take your time to settle slowly (inaudible)?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [34]

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No, it's not. We want people to see the actual finished product than rather buying it from brochure. And it's nice, it's best address. You can't -- difficult to get better address below the [front] line. And we feel that we can't really describe it on a brochure. So you have to be there. And just these are users; it's not speculators. These are users.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [35]

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So a few questions from our webcast audience. This is from Justin Kwok of Goldman Sachs, whether we have an intention eventually to pay at least 50% of our recurring income as dividends. I think Mr. Li already answered the question.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [36]

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Well, hopefully it's not that. Hopefully, it's that we can use our money to acquire more recurrent income. So that it's not a percentage of recurrent income as dividends, but that dividends continue to grow, as our profit grows because we use the money for better acquisition. Because if I paid it all out, I have no money left for acquisitions.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [37]

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The second question is on the upcoming high-speed rail station commercial site.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [38]

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Yes, we're looking at it.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [39]

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Any current views?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [40]

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Yes, we're looking at it.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [41]

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Third question is any early signs of impact on hotels in Hong Kong, in general, due to recent events?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [42]

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The good thing is because of our market positioning, we're not in central. So occupying central doesn't hurt our hotels. And so Harbour Plaza is very focused on returning customer who know Hong Kong well. So to some extent, we're affected, but I think we're affected less than other hotel groups, that's one, because of the location projects.

Second one is that we've got a lot of long-term stay. So a lot of our hotel rooms are leased to people who are living in Hong Kong for a few months. And our return customer ratio, I think is one of the highest in Hong Kong. So people that continuously stay with us, so they know the area well. These are frequent travelers to Hong Kong. So if they are long-term stay in Hong Kong, 1 or 2 months even doesn't affect them, mainly because they've signed up 4 months, 6 months leases with us on suites and rooms. So that gives us some stability also.

So, so far, I've seen the number hurt a little bit, but not in a great, great way. And these things in Hong Kong, we've seen before. It comes and goes.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [43]

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Justin from Goldman, you are just upstairs. You should join us in person next time. We should increase their rent.

Another question from Phillip Zhong of Morningstar. It's about additional share buyback at this price point.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [44]

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You guys are really putting a trick to me so that I lose my job. If I say this, I shouldn't be CEO. These are all the options we consider. We've done some.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [45]

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Patrick Wong from Bloomberg. The group has a strong track record in acquiring large-scale projects in the U.K. Any plans to further expand in the U.K. in the second half, given the risk of a hard Brexit?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [46]

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I don't think we're focused on U.K. in particular. We're very, very disciplined on the IRR and cash flow return on various projects. And then after we've done the cash flow exercise, we put a country risk to it. And to a certain extent, the country risk is reflected already in the local interest rate and currency already. So we've a long experience of operating in various countries. We're in 52. There are risk in all the 52 countries; different types of risk. But the beauty is that they balance out each other. And I think we'll follow that tradition on really a very number of focus with no romance or sort of Board-level strategic decisions. I like certain countries more than others.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [47]

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Last question from the webcast audience. [Kwan] wants to know -- from Bloomberg, wants to know whether we expect to see any effect on property sales, given the current situation.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [48]

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There is already some impact. There would be some impact. There should be some impact. I think the mood of buyers are very much wait and see. And that's quite obvious in the market. Unless it's the really low-end type, then people have an urgency to buy because they're getting married next month or something like that. But for medium and up in terms of pricing level, it's fair for customers to wait and see. But having said that, Hong Kong have seen these things before. And we've gone through many of these waves. So Hong Kong buyers as well as developers are both seasoned investors.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [49]

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Any questions, other questions from the floor?

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Unidentified Analyst, [50]

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Maybe just on M&A, some of the countries that you operate in have seen some pretty volatile stock prices. Any increased appetite? I know in the U.K., for example, a lot of names smashed pretty badly in the last few days. The valuation and the IRRs that you look for are getting more interesting to you now?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [51]

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I wouldn't focus on U.K., but if your investment banking decision -- division has any recommendation, I welcome a conversation. Keep coming. We're -- basically, the way I look at it is that we're panning for gold. And if you can pan with both hands, the chances of getting gold is better than panning with one hand. So we're panning with all our hands, to go through deals and select the ones that we like.

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Unidentified Analyst, [52]

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And I know you're very bottom-up IRR focused, but any views at the moment on various asset classes?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [53]

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I wouldn't look at it. It's not the type of asset. I'm not so subjective. I think the market, in terms of a -- in mature economy and local politics will continue to be volatile. Be it Hong Kong or France or Germany or U.K., there's always a local volatility. So we'd like to focus on businesses that are more resilient to volatility. And I think we've said this for a couple of years now that we work to improve the quality of our earnings, and therefore, the quality of the asset. And we're very focused on this.

And what does quality mean? Quality means come hell or high water, the cash still comes in, okay? So for example, we have different ranges of hotels from 3.5- to 5-Star property. But the more resilient one actually is the 4-Star, more resilient than the super 5. We have super 5s, but they're not all in our portfolio. But the 4s are more in terms of quality. It's not whether it's prettier or the chandelier is better or whether the food is better. It's the price, location and the cash flow resilience. That's why we're one of the few hotel owners who operate all the restaurants, all the rooms, all the interior designs, all the purchasings in-house. So from F&B to wine, it's all in-house. Again, that's resilience because our costing can be better controlled. We're now starting to supply our own wine to our hotel from our Australian vineyards.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [54]

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So Desmond from Morgan Stanley, Singapore. Can we get an update on the potential redevelopment of the Hunghom hotels.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [55]

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It's not an urgent topic on that one. It's still giving us yield. But there's an upside on redeveloping some of the hotels as offices. But it's not an immediate decision that we need to make. But the plans are there. In fact, the old Hutchison House or CK Center Phase II, the plans were submitted 6 years ago and was approved 6 years ago. And that's why, when we want to push the button, we can push the button immediately.

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [56]

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Any more questions?

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [57]

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No? So can I be excused?

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Lai Chee Ma, CK Asset Holdings Limited - General Manager of Corporate Business Development Department [58]

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Thank you very much for coming to our results presentation.

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Tzar Kuoi Li, CK Asset Holdings Limited - Chairman & MD [59]

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Thank you.