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Edited Transcript of 16.HK earnings conference call or presentation 12-Sep-19 9:45am GMT

Full Year 2019 Sun Hung Kai Properties Ltd Earnings Presentation

Wan Chai Sep 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Sun Hung Kai Properties Ltd earnings conference call or presentation Thursday, September 12, 2019 at 9:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chik-wing Wong

Sun Hung Kai Properties Limited - Deputy MD & Executive Director

* Hong-ning Sum

Sun Hung Kai Properties Limited - General Manager of Corporate Planning

* Kai-fai Kwok

Sun Hung Kai Properties Limited - Executive Director

* Kai-wang Kwok

Sun Hung Kai Properties Limited - Executive Director

* Ping-luen Kwok

Sun Hung Kai Properties Limited - Chairman & MD

* Ting Lui

Sun Hung Kai Properties Limited - Deputy MD & Executive Director

* Yuk-lun Fung

Sun Hung Kai Properties Limited - Executive Director

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Conference Call Participants

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* Hoi Chuen Yeung

Citigroup Inc, Research Division - Director

* Justin Kwok

Goldman Sachs Group Inc., Research Division - Executive Director

* Karl Choi

BofA Merrill Lynch, Research Division - Director

* Praveen Kumar Choudhary

Morgan Stanley, Research Division - MD

* Wai Ming Liu

HSBC, Research Division - Analyst

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Presentation

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Hong-ning Sum, Sun Hung Kai Properties Limited - General Manager of Corporate Planning [1]

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So good afternoon, ladies and gentlemen. Welcome to Sun Hung Kai Properties FY 2019's Annual Result Briefing.

As usual, I'll walk you through the key financial figures of the results and the latest business development, then we'll open for all for Q&A sessions with our top management. I hope you will find the briefing useful, and I would like to take this opportunity to wish you and your family a happy, peaceful and enjoyable mid-Autumn festival. Thank you.

So now let me kickstart my presentation. So this slide give you a quick snapshot of the results. First of all, we have achieved a decent set of result, with underlying EPS growth of 6.6% to $11.18. Secondly, as we committed, we'll pay higher dividend if underlying earnings is higher. As such, together with interim dividend, the full year dividend per share will increase by 6.5% to $4.95. Last but not least, our balance sheet remains strong, and our prudent financial management policy have us seeing a relatively low gearing ratio of 12.9%, which will enable us to weather through unforeseen circumstances.

Now let's look at the key financial figures, and please note that all figures are in Hong Kong dollars, unless otherwise stated.

For this financial year, the group achieved underlying net profits of around $32.4 billion, representing 6.6% year-on-year growth. The growth was mainly driven by higher profit from property sales as well as rental income. As mentioned, the underlying earnings per share increased by 6.6% to $11.18, while reported earnings per share declined by 10% to $15.50 due to lower revaluation gains on investments property this year.

A final dividend per share of $3.70 has been recommended by the Board, and our full year dividend per share will be $4.95, as mentioned.

So let me go through the profit breakdown by segment. Our rental portfolio continued to deliver healthy performance with net rental income of over $19 billion, up 5.5% year-on-year.

In Hong Kong, we achieved year-on-year growth of 5.7% in net rental income. In Mainland China, the net rental income grew at 6% year-on-year growth. And growth rate would be 11% in RMB terms.

Property development profits grew by 15% year-on-year to over $18 billion, to which Hong Kong contributed around 88% of the total. The profit on hotel business was down by 2.5% year-on-year, partially due to the pre-opening expenses of Hotel VIC, which has been rebranded as Hyatt Centric Victoria Harbour Hong Kong.

Other business contributed around $4.6 billion to the group. And the total group's operating profit amounted to $44.4 billion, up around 8.6% year-on-year.

As discussed, our balance sheet remains strong as reflected by relatively low gearing ratio of 12.9% and higher interest coverage of over 14x.

So let's move on to the property business in Hong Kong, and I'll talk about the land bank first. As of 30 June 2019, the group's total land bank in Hong Kong was up around -- about 58 million square feet of attributable GFA, of which 33 million square feet was completed properties and 25 million square feet was property under development.

For the completed properties, 36% of them are shopping centers and 31% are offices. For the properties under development, around 21 million square feet of attributable GFA is for residential use, of which around 2.5 million square feet has been sold.

During the year, the group had 7 projects with over 3.1 million square feet of attributable GFA, which include a data center acquired by SUNeVision for its business expansion. Apart from this, most of the projects will be developed for residential use.

In addition, the group reached a lease modification agreement to redevelop an industrial building in Tsuen Wan into a residential project which will offer a GFA of 168,000 square feet.

Let's move on to our rental portfolio in Hong Kong. So driven by a positive rental reversion, the group's gross rental income in Hong Kong grew by 6.4% year-on-year to $19.7 billion. Our shopping malls portfolio accounted for 54% of total rental income and registered a year-on-year growth of 7.5%, while our office portfolio grew 5.4% year-on-year and contributed 33% of the total rental income. The overall occupancy rate of rental portfolio was about 94%.

During the year, the group's 12-million-square-foot diversified retail portfolio continued to perform satisfactorily with positive rental reversions and reasonable occupancy costs. However, the operating environment has been deteriorating in recent months amid weakening consumer sentiment and declining tourist spending. In view of this, we continue to adopt proactive approach to managing our malls. For example, we shall enhance The Point by SHKP, which integrated the loyalty programs of the group's 15 major malls by devoting more resources into marketing campaigns to drive traffic and tenant sales.

In July this year, V Walk, a shopping mall underneath the group's Cullinan West residential development at MTR Nam Chong station is open. It provides nearly 300,000 square feet retail space and is almost fully leased.

So let's move on to our office portfolio, Hong Kong. During the year, the group's 10-million-square-foot office portfolio continued to experience positive rental reversion with overall occupancy standing above 95%. Going forward, there will be additional contribution from new properties for investments to the group's recurring income.

By the end of this year, Harbour North in North Point, which is the 145,000-square-foot retail component of Victoria Harbour Development, is targeted to open gradually. Looking further ahead, the completion of 98 How Ming Street in financial year 2023 will further scale up the group's presence in Kowloon East.

So let's turn to the -- first turn to our property development business in Hong Kong. On property development business in Hong Kong, the group has adopted new accounting standard, HKFRS 15, for recognitions of property sales. Based on the new accounting standard, the group recognized property sales of $36.5 billion, with operating profit of $16.4 billion during the year.

Major contributors, including Cullinan West II, Victoria Harbour Phase 1, St. Barths, Lime Gala, et cetera.

As at end of June 2019, over $47 billion contracted sales are yet to be recognized.

For contracted sales, we achieved nearly $60 billion in Hong Kong during the year, which was an exceptionally high number. Major contributors are shown in this table.

As usual, we will continue to put new projects on the market once they are ready for sale.

So assume this map, upcoming launches in the next 9 months will include a wide range of projects across the territories, including the Cullinan West Phase 3 and Tin Shui Wai project Phase 1.

The purple box on the top right-hand corner represent a nonresidential project for sale in Tsuen Wan. On top of this, we shall continue to sell remaining units of previously launched projects.

This conclude my discussions on the property business in Hong Kong. Next, I will go through our property business in Mainland China.

As at end of June 2019, the group's attributable land bank on the Mainland stood at around 65 million square feet. Of these, nearly 15 million square feet was completed properties and about 51 million square feet were properties under development.

For completed properties, 50% and 33% of them are shopping malls and office, respectively. For property under development, 56% will be developed into quality residency for sale.

In August this year, the group acquired 2 adjacent riverside sites in Qianjiang New City CBD in Hangzhou via government tender. If including these 2 new sites, the group's total land bank would be close to 70 million square feet.

The next slide will show you more about the Hangzhou site.

The group is pleased, joint ventured with Ping An to acquire these Hangzhou sites. Adjacent to 2 Metro station under construction, this site will be jointly developed as a landmark integrated project with high-end residence, offices, retail space and hotels, providing a total above ground GFA of around 9 million square feet.

In the Greater Bay Area, we also acquired 2 adjacent sites in Nansha Free Trade Zone in Guangzhou in May last year and February this year. With direct access to Qingsheng Station of the high-speed rail and the Guangzhou Metro Line, both sites will be jointly developed in phases into a 3.3-million-square-foot integrated transit-oriented development.

Now let me walk you through the performance of the group's rental portfolio on the Mainland. For the year, the group's gross rental income from the Mainland increased 4.7% year-on-year to $4.7 billion or around 10% in RMB terms. And it represents around 19% of the group's total gross rental income. The healthy growth was driven by positive rental reversion and contribution from new investment properties, partially offsetting by RMB depreciation.

Rental from shopping malls accounted for 56%; and office, 37%.

In Shanghai, the group's landmark integrated developments, namely Shanghai IFC in Pudong and Shanghai ICC in Puxi, continued to report positive rental reversion. Particularly, Shanghai IFC Mall, registered high tenant sales after the completion of the renovation on the ground level.

Another iconic integrated complex, Shanghai ITC, which is the first milestone with the first 2 phases completed. Overall occupancy of the office at One ITC and Two ITC stood at over 90%. The virtually fully leased grand luxury mall at One ITC will be opened by end of this year.

Considering we're at the remaining phase is progressing smoothly and is expected to be completed by the end of 2023.

In addition to Shanghai ITC, Nanjing IFC is the group's another new addition of integrated commercial project on the Mainland. The 500,000-square-foot office tower, namely, Nanjing One IFC, has recently been completed with some tenants already moved in. While the construction work of Nanjing Two IFC office will be completed in 2020. The pre-leasing discussion of the 1.1-million-square-foot luxury mall is currently underway.

Besides, New Town Plaza in Beijing held its grand opening in July this year. This reconfigured mall has been virtually fully leased, with over 100 trending, renowned brands.

On Property development business in Mainland China. The group recognized property sales of $4.8 billion, down 23% year-on-year, mainly due to less booking of high-end residential projects than last financial year. However, profitability was improved, which helped compensate for the decline in sales.

Major contributions include Grand Waterfront Phase 2 in Dongguan, Shanghai Arch and Oriental Bund in Foshan. As at end of June 2019, around 4.7 billion contracted sales are yet to be recognized.

On contracted sales, the group achieved attributable contracted sales of about RMB 4.6 billion during the year. And this table here highlights the major launches on the Mainland in the next 9 months. It includes Shanghai Arch Phase 2; and the brand-new project, Residence at Suzhou ICC.

Now moving on to the Hotel business. The group's Hotel portfolio performed relatively steady during the year. However, operating environment has been deteriorating in recent months. As discussed, operating profit was lower, partially due to the preopening expenses of Hotel VIC and softening of the market condition in the recent months.

The look ahead. We are scheduled to open ALVA HOTEL BY ROYAL in Sha Tin late this year, and the construction works of the hotel project on West Kowloon Waterfront is underway.

And that covers our business update. Let me share with you the market prospect.

The Hong Kong economy is likely to remain weak in the short term given a slow global economy and unprecedented internal challenges. The primary residential market is likely to be supported by the relatively low mortgage rates and continuous end-user demand despite softening market sentiment.

On office, lease inquiries are likely to slow in coming months, yet tight supply in the core areas would help cushioning the downside risks.

On retail side, the weakening consumer sentiment and declining tourist arrivals have posed challenges in the retail markets, especially the street shops in tourist areas. However, rent in well-managed malls will outperform those in street shops.

On the Mainland, despite the continuous Sino-U.S. trade conflicts, its economy is expected to grow at a reasonable rate on the back of monetary and fiscal stimuli.

On primary residential market in key cities, city-specific housing policy will need to vary city-by-city performance. However, end-user demand is likely to underpin the transaction volume.

In the office market, we expect quality Grade A office buildings at prime location in major cities to continue to attract multinationals and mainland companies.

The retail market on the Mainland is expected to see healthy growth, supported by plans boosting domestic consumption.

Let's talk about our business prospect. As for the business prospect of the group's property investment business, the certainties -- the uncertainties of late have weighed on the overall leasing activities in Hong Kong. In order to help drive the traffic and tenant sales at our shopping malls, we shall further boost our shoppers' experience by devoting more resources into marketing campaigns by The Point by SHKP. Beside, there will be additional contribution to our recurring income from new developments in both Hong Kong and Mainland China in the next few years.

In addition, we continue to seek disposal opportunities for noncore property.

As for the business prospect of the group's property development, we shall continue to put new projects on the market once they are ready for sale. Besides, we have already presold 70% of GFA planned for sale in Hong Kong, which is scheduled for completion in the next financial year.

Our existing land bank is sufficient to meet our medium-term development needs. And with strict financial discipline, we shall seek land acquisition opportunities in both Hong Kong and Mainland China when good opportunities arise.

Finally, I would like to share with you a message extracted from the Chairman's Statement to wrap up my presentation today.

"With an unwavering faith in Hong Kong, the group is confident of being able to weather the current tough and challenging environment and move forward as it has come through the storms and grown with this city over the decades."

Thank you very much for your attention. Please join me to welcome the top management to come up on stage for the Q&A session. Thank you.

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Questions and Answers

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Unidentified Company Representative, [1]

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Before we continue, I would like to introduce the panel to you.

From your left, Mr. Brian Sum, whom you have already met; Mr. Christopher Kwok, Executive Director; Mr. Allen Fung, Executive Director; Mr. Victor Lui, Deputy Managing Director; the center is Mr. Raymond Kwok, Chairman and Managing Director; Mr. Mike Wong, Deputy Managing Director; Mr. Adam Kwok, Executive Director; Mr. Eric Tung, Executive Director; and Mr. Frederick Li, Group Chief Accountant.

(Operator Instructions) Video of today's briefing will be uploaded on our company website.

May I now invite the first question, please?

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Hoi Chuen Yeung, Citigroup Inc, Research Division - Director [2]

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It's Ken Yeung from Citi. So I have a 3 questions, quick questions on -- first, on Hong Kong residential. Recently, I see, Victor, you have launched the price list of Cullinan West III, which is quite cheap, 21,700. Well, I just want to ask, is it the strategy that Sun Hung Kai is going to launch at a cheaper price or basically in order to boost sales? Or you think that there may be some potential that -- how should we think about your pricing regarding your sales strategies? And this -- the follow-up question is, if you're bearish, if you are positive, do you think that this is a good opportunity to buy land now, which other people have been quite scaled back. So this is the first question.

I think the second question is a lot of guys are interested in the recent appointment of the -- of your new INED, Wu Xiang-dong. So should we expect that there may be more synergies to be acting -- more synergy to be acting under China investment property side with his appointment?

And lastly, can you update us your China tenant sales?

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Ping-luen Kwok, Sun Hung Kai Properties Limited - Chairman & MD [3]

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Sorry, China...

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Hoi Chuen Yeung, Citigroup Inc, Research Division - Director [4]

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Retail sales for your Shanghai Malls.

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Ting Lui, Sun Hung Kai Properties Limited - Deputy MD & Executive Director [5]

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Yes, on the residential market, I think we all know that the primary market is a bit affected by the trade war and the recent social incident. But however, I think market is still resilient, as we can see a number of projects recently launched are quite well received, proving that basic demand is still really strong. In fact, the prevailing low interest rate with reasonable repayment affordability will continue to induce more people, especially renters, to buy.

And due to the increasing uncertainty of other financial instrument, I think more people are willing to allocate their wealth on properties. We all know the market has been really strong in the past 6 months, and recently, market is a bit affected by various factors. And for the first price list we are releasing on Cullinan West, I think it is acceptable by most of our buyers. And we are very confident that we can have some room to increase our price in the future launches.

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Ping-luen Kwok, Sun Hung Kai Properties Limited - Chairman & MD [6]

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I'll take up your question on Wu Xiang-dong. Christopher, can you answer the question about China retail sales first? China retail sales, you want to answer that?

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Kai-wang Kwok, Sun Hung Kai Properties Limited - Executive Director [7]

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Okay, sure. Yes, I think we have in the report that for the most recent quarter, quarter 2 in 2019, I think all of our shopping malls in -- all of our shopping malls in China have seen either high single-digit or double-digit growth in sales. And also for -- in terms of -- for the financial year of 2018 and '19, we've seen double-digit growth in the rental income for our retail properties in China.

I think even though there are obvious global economic uncertainties like the U.S.-China trade war, the slowing economy, I think those are expected to persist. But I think we've -- at the same time, we also see that the Chinese government has been rolling out a series of stimulus measures to boost domestic consumption. For example, in terms of cutting down the import tariff and the -- and reforming the VAT and also some -- a new e-commerce-law that was legislated last year. I think these are all very conducive to stimulating domestic consumption.

I think for us, we see that the luxury market remains quite upbeat, especially in the bigger cities like Shanghai and Beijing. And so I think going forward, we are -- we remain cautiously optimistic and also explains why we also continue to invest in China.

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Ping-luen Kwok, Sun Hung Kai Properties Limited - Chairman & MD [8]

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On Wu Xiang-Dong, I've known him for 15 years. In fact, we had joint venture with him when he was with China Resources Land. He is the best developer, in my view. He has built up the portfolio of the China resources mix. Our joint venture with China Resources Land happens to be in Hangzhou. Yes, the mixed project. I think he's the best developer for integrated project, especially for malls.

We're so glad that he could join us as INED. We have 20% of our assets in -- on the Mainland, and we want to build more integrated projects. He will be very helpful to advise us on the market on the Mainland and also about the politics of how to deal with the local authorities, yes. So he's a very valuable asset for us now that he's INED. Thank you.

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Unidentified Company Representative, [9]

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Thank you, Mr. Kwok. Next question, please.

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Wai Ming Liu, HSBC, Research Division - Analyst [10]

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This is Raymond Liu from HSBC. I've got 3 questions. The first question is about dividend. So at the moment, like only a very few Hong Kong developers -- or Hong Kong property companies increased the dividend during the latest results due to the challenging business environment. So the question to the management is that are you confident about your business outlook that will be continually gradually increase your DPS in the next 2 to 3 years? Or in any situation that will the company consider to cut your dividend? This is the first questions on dividend.

And the second question is about the residential Hong Kong property development business. So last year wasn't exactly a great year. So contracted sales hit a record high $60 billion. But is this like a sort of one-off event? Or do you think it's [sustainable]? So in that perspective, will you consider to revise your medium-term and your sales target? That's the second question.

And the last question is about the retail sales in the business in Hong Kong. So can you share with us the retail sales performance in July and August? So what will be the upcoming leasing strategy or performance or outlook in the next 12 months' time?

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Ping-luen Kwok, Sun Hung Kai Properties Limited - Chairman & MD [11]

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Can you answer the second one in the Hong Kong market?

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Ting Lui, Sun Hung Kai Properties Limited - Deputy MD & Executive Director [12]

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Yes. Yes. As we know, we have achieved very good contracted sales in last financial year. And in the coming 9 months, apart from Mount Regency, which we have just sold and with most of the units are being sold out within a short period of time, we are now putting Cullinan West Phase III for sale. And while our project in Stubbs Road, Central Peak, our (inaudible) will be completed very soon, and we can put a few units for tender very soon.

At the end of year, that would be our Wetland Park site. And together with our industrial site in Tsuen Wan. And in next year, we have 2 essential projects for sale, namely, the Tsuen Mun south project and also the Sha Tin premium project in the Hill Top. So again, you can see, we have a lot of projects for sale in the coming 9 months.

And we must admit that last financial year is exceptionally good year for us because we had construction progress and the issuance of the sales consent better than expected. Although this may differ in this year, with ample marketing resources, we are confident that in medium term in Hong Kong we can achieve an average annual sale of $40 billion.

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Ping-luen Kwok, Sun Hung Kai Properties Limited - Chairman & MD [13]

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On the issue about the dividend. Our earnings per share has gone up 6%. So that's why our dividend per share has gone up 6%, too. Our dividend policy is to pay 40% to 50% of our profits. So we'll try to keep within this range. So therefore, if earnings per share go up, our dividend per share will go up. If our earnings per share go down, then we'll try to maintain the dividend as long as it's staying within the range of 40% to 50%, yes.

On your question about retail sales, of course, I think August was a bad month for some of the malls, but not for all our malls. Because for some of the regional malls, they are not affected by the protesters. The sales are still okay. I think, of course, for malls like New Town Plaza and IFC is a bit impacted by the protesters.

Regarding the tenants, of course, they are not doing that well in July but August -- and August. But for the first 6 months of the year, they are achieving good growth in sales for the first 6 months. So therefore, I think we have to continue to observe who are doing well or not doing well. But of course, for the tenants, basically that they have a bad business model, we can't help them that much, yes. But for the tenants that are generally doing well and are trying their best, we'll try to help them a bit, yes. Thank you.

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Kai-wang Kwok, Sun Hung Kai Properties Limited - Executive Director [14]

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I think another point, I think, we also have -- I think our occupancy cost is also quite reasonable. It's kind of in the mid-teens right now. So I think we have a good -- we have a solid base of rental income. So it's a good buffer for -- if the situation persists, yes.

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Unidentified Company Representative, [15]

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Thank you, Mr. Kwok. Next question?

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Praveen Kumar Choudhary, Morgan Stanley, Research Division - MD [16]

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This is Praveen Choudhary from Morgan Stanley. A couple of questions. One is on buyback and one is on your business overseas. The stock is currently trading at 0.6x price-to-book after the new revaluation gain that you have disclosed. The use of cash, considering your gearing is pretty low at 12% or so, instead of buying land versus buying back strategy, how do you decide which one to do? And would you consider buying back your stock?

The second question is about diversification away from China and Hong Kong. Pretty much most of the business is in China and Hong Kong at this point in time. Considering all the political situation, would you be considering some diversification, either in Singapore or any other market?

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Ping-luen Kwok, Sun Hung Kai Properties Limited - Chairman & MD [17]

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Regarding the buyback, we are trading at 0.6x book but so are all our peers, except for MTRC. So I think we have to look at the business from the long-term point of view. We have to keep our good people. The best way to get good people is to continue buy good land. You are right. I think there will be opportunities to buy land in Hong Kong and also on the Mainland, yes. So I don't envisage us buying back shares, yes.

And also, we are glad that our leverage is 12.5%. This is the moment of time that we need to make sure that we have enough dry powder in case the market gives us good opportunities.

Regarding business overseas, I think we'll stay in Hong Kong and on the Mainland because -- and this is a market we are familiar with. We've built up our human resources over time that are very familiar with these 2 markets.

In Singapore, we have 1 project. But I think on this -- ION Orchard, which Eric Tung has done. But in Singapore, there's so much competition to buy land. The margin definitely is much less in Hong Kong and on the Mainland. So at this moment of time, we intend to continue to invest in Hong Kong and on the Mainland, yes. Thank you.

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Unidentified Company Representative, [18]

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Next question?

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Karl Choi, BofA Merrill Lynch, Research Division - Director [19]

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Karl Choi from Merrill Lynch. I have 3 questions. First one on farmland. I guess there's recent speculation around the government may use the land resumption ordinance to return some of the farmland from developers for building public housing. And if that is the case, will also Sun Hung Kai be cooperative in the land resumption scheme.

And actually, separately, one of your peers recently sold a farmland to a third party. Can I just -- if there's any demand or any inquiry on Sun Hung Kai's farmland from third party as well?

And second question is more about pricing. We all know about the pricing of Cullinan West III now, but how about the inventory projects, especially those in Yuen Long. Would you be considering cutting price to churn the assets?

And last question on hotel. Could you update us on the latest hotel rates and occupancy maybe in July and August versus the first half of this year? And do you have any measure to make your hotel portfolio in Hong Kong to be more cost effective under the current situation?

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Chik-wing Wong, Sun Hung Kai Properties Limited - Deputy MD & Executive Director [20]

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On farmland, I think I can...

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Ping-luen Kwok, Sun Hung Kai Properties Limited - Chairman & MD [21]

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(foreign language)

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Kai-fai Kwok, Sun Hung Kai Properties Limited - Executive Director [22]

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Let me start off by saying the Henderson price they sold it was, of course, at a very good price. And if we can find a buyer like this, for sure, we will consider it. So please introduce some buyers to us.

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Chik-wing Wong, Sun Hung Kai Properties Limited - Deputy MD & Executive Director [23]

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But on general, seen on the conversion of farmland, we have been doing very proactively and actively over the past decades -- I mean, few decades. And just for 3 years alone -- for the 3 years -- past 3 years alone, we have converted 9 million square feet site area, 8 million square feet floor area into 15...

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Ping-luen Kwok, Sun Hung Kai Properties Limited - Chairman & MD [24]

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Thousand.

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Chik-wing Wong, Sun Hung Kai Properties Limited - Deputy MD & Executive Director [25]

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15,000, 15,000 units. And we will continue our pace to apply for our land. In fact, 2/3 of our landholding in NT under various stage of application to government to turn the agricultural farmland into active use. And mostly, the majority of those are for residential units.

But one point we would like to highlight is that we are facing an issue that no matter how good is the location, proximity, depreciation, the permitted ratio -- plot ratio is pretty low, something like even 0.2, 0.4, 1. I think we are actually making a very active preparation work to propose to government to turn those relatively underutilized land into more intensive use to provide more number of affordable housing to meet the actual demand of this community. This is the first point.

And I think Adam has dealt with the sale of farmland by the peers, and the price for I think Cullinan West, I think, Victor, you can handle that?

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Ting Lui, Sun Hung Kai Properties Limited - Deputy MD & Executive Director [26]

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Yes. But actually, I want to answer your -- the question on the Yuen Long project. Actually, we don't have any pressure to -- on price reduction at all, especially PARK YOHO, which we are now delivering, we can process on to our purchaser. All of them are very happy with our building quality and environment. And actually, for the latest phase, we only have around less than 300 units on hand. And we are going to launch -- we launch these units very soon. And on the contrary, we have some room to increase our price further.

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Ping-luen Kwok, Sun Hung Kai Properties Limited - Chairman & MD [27]

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On the question about farmland, I would like to add that we don't want to build 0.2x. We don't want to build houses. We want to build more housing for the middle class. So that's why I think on our -- on most of our agriculture land, we are launching our application to ask for more intensive development so that we won't waste the land by just building houses for the rich. We want to cater more for the middle class. We feel we have obligation to build more for the middle and the lower income class.

On the hotel, of course, I think August was a terrible month. In fact, some luxury hotel only had 50% occupancy. But that's a problem with all the traffic warning issued in Europe and Japan and U.S. Of course, I think we'll have to discuss with our hotel managers on how to cut down our costs. That's the only way that we can achieve breakeven or about breakeven. Hopefully, the violence in Hong Kong will be curbed and then more people -- more Mainland Chinese and more Westerners will come back to conduct their business, yes. Thank you.

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Kai-fai Kwok, Sun Hung Kai Properties Limited - Executive Director [28]

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And can I also add one thing on farmland? And that's I think this is actually a really good time for the government to speed up and up-zone the farmland, as I think we have seen some increased effort and urgency from them. You can see that even in our latest -- in [SAISA] that we have submitted around -- we've got approval around 6 months ago. We got massive -- we got a 20% increase in plot ratio on top of units increased to 9,000 units from around 4,500. And we are also submitting similar cases with up-zoning. And I think the government has actually showed more urgency in processing it. So I actually think it's a good time.

In terms of land resumption ordinance, I think there may be some confusion among the analyst community. And I think Mike can give a whole day of lecture on this. But to keep it very simple, it's actually nothing new. The government has been using land resumption ordinance, fulfilling the public purpose for many, many years, even in the British times and now. And they have done it with a clear purpose that if it is to be a public housing or it is to build what we call GIC, government stuff, schools, hospitals, elderly center, that they could use it for -- or roads, they could use it for public purpose. And we have, in the past, due to that, surrendered, the lands. And in the future, we see that, that is also what's going to happen. So it is actually nothing new.

And I think you guys need to understand that the land assumption ordinance, I think a lot of our projects already have zoning for private housing or has already been approved by Town Planning Board and so on. And some even already, it's in final stages of negotiation. And I think for government to resume those and then auction it out or otherwise, when we already have a clear progress and we're already almost there, I think doesn't stand up against the basic law of protection of property, nor does it stand up to the public purpose ordinance.

And I think even yesterday as the DAB (foreign language) was talking about it or they also acknowledged this fact. They are for resumption of land with already public zoning -- with already publicly zoned land. And that's always been the historical practice as well. So it's actually nothing new.

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Unidentified Company Representative, [29]

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For the interest of time, may I invite the last question, please? Gentleman in the fourth row.

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Justin Kwok, Goldman Sachs Group Inc., Research Division - Executive Director [30]

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Justin Kwon with Goldman. Perhaps the last few questions. One, on the office side. Could you comment on what you're seeing in the leasing market [at the moment]? Do you sense that the multinationals are taking more (inaudible) feet on Hong Kong at the moment or being -- well, likely to contract? How's the renewal for the 2 (inaudible) banks and ICC at the moment?

The second question is actually on Hangzhou. It's actually interesting to see that you're expanding the city. Do you expect more of these opportunities to come out in the midst of the tight -- credit tightening in China? And whether you're also likely to get on with a joint venture, which is something new, I guess, in the way you do the business.

Perhaps, the last question is actually on SUNeVision. So I've noticed that you have announced a asset swap with the subsidiary. Can I check in what's the rationale on this? And what you expect out of that?

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Ping-luen Kwok, Sun Hung Kai Properties Limited - Chairman & MD [31]

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ICC and...

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Ting Lui, Sun Hung Kai Properties Limited - Deputy MD & Executive Director [32]

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Yes. Until the trade war and the possible economic slowdown in both Hong Kong and China have been solved, we can -- office, this is in demand starting from Q4 last year as -- but we can see that Central still hold up well due to limited available space.

In fact, vacancy in Central is only around 2.5%, which is manageable. And use of private only come up in 3 to 4 years' time. And we can see most of the grade-A buildings in Central are still in high occupancy. And like One and Two IFC, we are fully let. And for ICC in Shim Sha Tsui, actually, we are doing a premium rent in the whole locality. And I think the whole area will further boost by the high-speed railing and also the future West Kowloon cultural area. And we have just having a positive rental reversion with some of our major tenants.

So looking at the current leasing performance on most of the grade-A buildings in (inaudible) and Shim Sha Tsui, we don't see any trend of MNC moving out of Hong Kong.

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Chik-wing Wong, Sun Hung Kai Properties Limited - Deputy MD & Executive Director [33]

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We hold a very positive prospect of Hangzhou City as part of the (inaudible) region, and we have been actively looking for opportunity in Hangzhou for the past few years. And now that we are very fortunate to find a good partner, Ping An Real Estate, could have -- we are going -- have to sort of -- hand in hand to execute this project. And we believe they have very good knowledge of the Chinese real estate market.

And the project, probably you are aware of the details. It's a 9 million square feet project comprising residential, service apartment, hotel and offices, both for sale, and both for long-term investment or long-term rental. And it's a Waterfront site, fronting the Qiantang and across 2 subway stations. And we have a very bright prospect of the development of the site.

This is -- incidentally, the site is just across the Qiantang. It's going to be the new city hosting the Asian Games in the year 2022. So that whole area will be energized and whole Hangzhou City will be -- have a new face in the few years to come.

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Yuk-lun Fung, Sun Hung Kai Properties Limited - Executive Director [34]

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On the proposed asset swap between Sun Hung Kai and SUNeVision, we think this is a transaction that is beneficial for both Sun Hung Kai and SUNeVision.

The Sha Tin Center is now completely revitalized to be a data center. And it makes a big difference in our opinion for SUNeVision to manage the operations of the building as well. Actually, you see that most of the data centers we do, actually we own ourselves because actually you manage it better and you develop better quality of service to your customers. In fact, several of our global customers prefer this arrangement. In return, Sun Hung Kai gets back to investment properties which are more core to Sun Hung Kai than to SUNeVision.

I think as you can tell, it's a strong -- a good, strong support, SUNeVision. You can see it from the term loan we got a few months ago. And also, in general, it is very simple, the logic. We are a big majority shareholder of SUNeVision. Anything in our view that accelerates the growth of SUNeVision is not just beneficial to SUNeVision, but also very good for Sun Hung Kai as well. So that's the spirit in which we carry out this transition -- transaction.

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Unidentified Company Representative, [35]

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Thank you, Mr. Fung.

Ladies and gentlemen, thank you for coming. Hope you enjoyed our presentation and find it useful.

There are some refreshment outside. Please stay and enjoy. Thank you very much, and see you next time.