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Edited Transcript of 35.HK earnings conference call or presentation 29-Nov-19 2:00am GMT

Half Year 2020 Far East Consortium International Ltd Earnings Call

Hong Kong Dec 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Far East Consortium International Ltd earnings conference call or presentation Friday, November 29, 2019 at 2:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alexis Adamczyk

Far East Consortium International Limited - Head of Corporate Development and M&A

* Cheong Thard Hoong

Far East Consortium International Limited - MD & Executive Director

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Conference Call Participants

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* Aditya Salim

* Jacky Chan

AMTD Asset Management Limited, Research Division - Head of Property Research

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Presentation

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Unidentified Company Representative, [1]

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Good morning, ladies and gentlemen. Welcome to the interim results presentation of Far East Consortium International Limited. For the company to enhance our IR work, please get the QR code of our official WeChat in the last page of the presentation or search WeChat ID FEC035 and stay close with our updates.

Now I would like to introduce the management representatives on the stage. They are: Managing Director, Mr. Chris Hoong; Chief Financial Officer and Company Secretary, Mr. Boswell Cheung; Head of Corporate Development and M&A, Mr. Alexis Adamczyk. Next, Mr. Hoong is going to reveal the company's performance on the first half of the year, and then we will have a Q&A session. Mr. Hoong, please.

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [2]

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Thank you very much. Ladies and gentlemen, good morning. If I may just -- I think there are some people who are actually on the webcast. So you can refer to our website. On our website, you will find the presentation as well. So we can refer to that presentation that we -- I'll be using for this results briefing. And after this presentation, I will play 2 short video. And after that, we'll have a Q&A session. Thank you.

Now first of all, if I may just begin by giving you an overview of our results. A few highlights on the revenue. We recorded a revenue of HKD 5.1 billion versus HKD 3 billion last year. That's an increase of 75%. Our gross profit was at about HKD 1.6 billion, which is up about 37% compared to last year. However, this year, given that there's a number of one-off items that were not repeated this year versus last year, our net profit was HKD 715 million, which is up 16%. If you adjust for the noncash items, primarily depreciation, and we -- this year, we have an unfavorable movement in terms of investment property revaluation. If you adjust those 2 items, adjusted cash profit was HKD 960 million, which is up about 60%, and dividend per share -- sorry, EPS per share was HKD 0.30, HKD 0.304. And our dividend, we declared a dividend of HKD 0.04 for the first half of the financial year 2020.

If I may just move on to the next page, that summarizes a number of key performance highlights. And so far as property sales are concerned, the key contributor for our sales has come primarily from 4 regions. One is China, which is not a big amount compared to last year. Hong Kong, definitely, because we have a couple of big projects that we completed. In Australia, we completed the -- it is the key project in Perth. And also in Singapore, Artra project, we made some -- is near completion now in that project. So we have recognition of some revenue from that project there. So overall, the property development business, the revenue was up about 150%, which is the key driver for the increase in revenue.

And in terms of cumulative presales, this was basically sales that we have contracted but not booked on our P&L yet, the amount is HKD 12 billion. And this was down compared to 31st of March, and that was primarily because we had quite big, major sales recognition for the period. And there was some -- only 3 projects that we launched in the first 6 months. The big project that will be launched in the coming financial year -- or the financial period, the second half, there is a total of about HKD 8.8 billion of launches that will be coming on stream, primarily coming from the Queen's Wharf project, the Singapore project as well as our London project, which will be launched in the next few months or so. These are big launches that will be coming up. And also, in Manchester -- our colleague from Manchester is also here. There is also going to be a new project that we'll be launching in Manchester.

So far as recurring income stream is concerned, I think we are all aware of the headwinds that we faced in Hong Kong. However, having said that, right, despite the headwind that we're seeing across the board in Hong Kong, so far as recurring income stream is concerned, it's largely unchanged compared to last year. It was down 2% all in, and we recorded HKD 1.4 billion in recurring revenue.

Car park, it was up 11%. Gaming was up 17%, primarily because we had 1 additional month of contribution this year versus last year, where we had only a 5-month contribution, given the completion of the Trans World acquisition was on the 1st of May last year.

Hotel overall was down 10%. Hong Kong itself, for the first 6 months or so, about 20%, which is, I think, in line with the industry performance due to the situation with the social unrest issue.

The BC Group platform, and we have our MD of BC Group also here today, David Hinde. So if -- for those of you who are interested to understand more about this business, maybe after the presentation, you can speak to him. The AUM, in terms of the mortgage loan assets as at 30th of September was at about 853%. It's very strong growth compared to the last reported figure of 31st of March, is up about 36% in terms of total loan assets under management. And this business, we haven't even done the securitization offering yet to reduce the cost of debt. So we are looking forward to seeing the growth in this business in the coming year.

So far as balance sheet is concerned, I think a number of highlights there. One is we completed our USD 300 million perpetual notes offering. We also -- as we, I think, reported in our last results, we mentioned about our -- some initiatives that we were looking at in terms of unlocking the value of our hotel portfolio. And we have decided that we would go for a spin-off of a select group of hotel assets, and I'll talk a bit more about that later on.

So we have submitted our Hong Kong Stock Exchange PN15 submission a few days ago. And it's going to be -- it's going to take, I think, a few months to take that -- to execute that exercise.

There is also some number of assets that we're looking to monetize on to, of course, strengthen the balance sheet even more, and the selected assets actually are shown on Page 6 here.

So far as shareholders returns are -- is concerned, I think we mentioned about -- we announced the share buyback program that we started executing post the last year-end period. We bought back about HKD 81 million of shares out of the HKD 200 million that we mentioned that is in our plan. Unfortunately, in Hong Kong, there are a lot of rules concerning buyback. If we are doing a transaction, we will be -- we can't really execute the buyback without making the information known to the market. So there's a bit of constraint there, but we will do our best to execute the plan as possible.

So if I may just move on to the next page, which is the recurring cash flow revenue analysis. You'll see that, and I mentioned this just now, the hotel component is down about 10%. If you analyze that between those and TWC, TWC with the benefit of the 1 month additional contribution, plus the underlying performance growth, they were up about 28% versus Dorsett Group which is down about 13%, given the impact on the Hong Kong situation. So far as car park is concerned, it's up 11%. I mentioned this. Gaming is up about 16%, driven primarily by the underlying growth of the TWC Casinos, which is up 34%, but offset by a reduction in dividend that we collected from The Star.

So far as rental is -- revenue is concerned, it's pretty stable at HKD 117 million, which is up about 5% overall. So all in, the total recurring revenue is largely unchanged at about HKD 1.4 billion. So it's down a little, 1.6%.

If you turn on to the next page which is on the adjusted cash profit, this is something which I like to focus everyone on because a big part of our business, we -- I think I mentioned this a few times before, not only are we not recording the hotel assets at market price, we're actually depreciating it. And at the moment, there's a big revaluation surplus that we have in the hotel portfolio. And if you analyze our numbers, you should really be focusing on the cash profit because the depreciation figure was about HKD 219 million. And if you adjust for that figure, our adjusted cash profit was, for the first 6 months, HKD 959 million versus HKD 598 million. If you take out some of the one-off items in '19, it's up about 60% in terms of recurring -- sorry, in terms of adjusted cash profit.

In the first 6 months, the other sort of headwind that we faced was the exchange rate movements. If you turn to Page 9, you -- it will show you that actually against all major currencies that we have exposure to, Australian dollar, renminbi, ringgit, British pound, the Czech currency as well as Sing dollar, is down somewhere in the range of 2% to 6% for the first 6 months. That has an impact on both, of course, the profitability of our overseas operation, but also, I think, in terms of the net asset value because we're using the balance sheet date to look at it. So if currency had remained constant over the period, our profit would have been HKD 21 million higher and our net asset value or our shareholders' fund would have been HKD 730 million higher. So of course, this is the business that we operate in. We take a regional approach, and hopefully, we will see that situation sometimes in our favor as well.

If you turn to page -- the next page, gives you an analysis in terms of the property development business, what we achieved. So far as projects completions are concerned, I mentioned just now about the Elizabeth Quay in Perth but also the 2 Hong Kong projects, Astoria Crest as well as Garrison. These were completed in the first 6 months. New launches were The Star, Epsilon in Gold Coast. This is a joint venture project that we do with Chow Tai Fook as well as The Star. Dorsett Place, which is we're utilizing our site in Subang. This is another sort of new launch that we did. Cuscaden Reserve, which is a joint venture project, we'll be owning -- or own about 10% interest. So these are the new launches that we did in the first 6 months.

So far as new hotels are concerned, there are 2 new hotels that are added, and both are actually post balance sheet additions. So one is the Ritz-Carlton in Perth, which we'll play a video later on, a short video, just to show you how fantastic that property is. And also the Oakwood Premier Hotel, which is a joint venture acquisition that we made and completed in November.

On the land replenishment side, we bought another piece of land in Melbourne. I mentioned this, I think, in my last results briefing. It's on Bourke Street, and this project will be launching next year, most likely, I think, probably in August or September next year.

Network Rail. This is a project that is in the Northern Gateway. We actually signed a contract to acquire big parcels of land there. And in Shanghai, we also bought some land for local rental investment. And in Hong Kong, we bought the Kai Tak site. I think a number of you may have note this last week. There was also a big commercial land that was acquired by Sun Hung Kai, and the price there was about 80% higher on a per square feet basis compared to the site that we pay in -- the commercial site that we paid in Kai Tak. I'll talk a bit more about Kai Tak later on. But I think it was actually a pretty good acquisition for us.

In terms of monetization plan, I think we -- I mentioned earlier about a spin-off, right? The scope of the spin-off, if I may use this opportunity to give a bit more information, first of all, we want to make sure that we create a vehicle which is going to have very good investors following. We will be giving the REIT vehicle a global mandate so they should not, in any way, be limited to where they should invest. The rationale for us is very simple. I mean we are creating a platform dedicated for us -- for cash flow assets like hotel. This will allow us to unlock significant reversion surplus that we've accumulated over the years in our hotel portfolio. But more importantly also, I think we can create that as a new business that we can also use to manage third-party hotel assets by acquiring those using the REIT vehicle. So hopefully, we will create another sort of asset management platform that we can drive this business by and grow by not only having the hotels that we are developing but also be actively looking at third-party hotel acquisition using this vehicle as well. So this -- that's really a number of key rationale for the spin-off. And I'll talk a bit about it, about in terms of market and why we think it's a good timing and all that later on and on the following slide.

But on the other sort of unlocking of value, there are a number of, to us, what we see as potentially noncore assets. One is 21 Anderson Road. We are still looking for -- maybe had some offer, but we want a better price for it. So we are still holding on to it. It's collecting rent at the moment. So there's not much holding costs so far as that development is concerned. But in terms of the property, it's a freehold land, and it's very rare in Singapore to really have a development sitting on freehold land. So we -- but to us, I mean, if the price is right, we will sell, right?

The other sort of noncore asset that we're looking to dispose of is, of course, the retail that we have in Elizabeth Quay in Perth. But we wanted to stabilize it first with more tenants taking up the space. I think we only have one more space left. And then after that, we can then sell it off.

And also the retail component in Artra in Singapore, which is, again, I think we have leased up almost all the rent -- retail space, except for one unit there. And once this only start stabilizing a bit, we will sell it. So this will also, I guess, help unlock and crystallize the number -- some value within the assets that we hold in our portfolio.

Moving on to the next page. I mentioned just now about REIT -- the mandate. It's a global mandate to the REIT. The initial portfolio that we've been putting in, some hotels in U.K., in Singapore and Australia and in Malaysia. We've excluded Hong Kong, China, Hong Kong, in particular, for obvious reasons, and it's not the right -- best timing to be doing it. But overall, I think in term of market conditions, we feel that this is -- the interest rate environment is actually very conducive for a REIT offering, and we have shown in this table some statistics. If you look at really the REIT index in Singapore, the performance of STI is performing. And if you study the REIT in Singapore, you will see that the market is actually -- the yield is actually very quite compressed. This is equity yield, right? I mean they're paying the dividend in the range of 5% to 6%, right, depending on the exposure of the portfolio. So we are quite excited about this market situation, and we think that it's the right time to be doing it. More details about the REIT offering will come as when we publish our spin-off document. This will be likely to be a major transaction so far as the group is concerned. And we will be having a shareholders' meeting to specifically talk about that. And after that was approved, we will then have to also go through the Singapore listing process. So far as timetable is concerned, I think it will be hopefully before middle of next year. I don't want to be too committing on the timetable to everyone here, but the intention is really to create this vehicle, hopefully, be able to then unlock this value.

And then so far as the use of proceeds, we will be able to redeploy that in a number of ways. So maybe increase the buyback, pay dividend, pay down debt, use the money to invest in accretive acquisitions to more build-to-sell business. But at least once that -- from a strategic perspective, right, once we create that vehicle, we will -- it will give us a lot of flexibility. And if you look at the pipeline of our hotels across the group, we're building 14 hotels in total. And we're also in discussions with our joint venture partners to hopefully get them to also come on board in terms of this initiative to also utilize the vehicle so that we can still asset manage it but be able to help unlock this value across the portfolio of assets that we are building.

Moving on to the next page, you will see that actually, gross margin has declined across the board, and there are specific reasons for each. For the property development, because we have less China development booking this year, but 30%, I think, is a blended figure.

Australia Perth has got a slightly lower margin, but other regions, we have a bit higher margins. So on a blended basis, it was 30%. Hotel is still maintained at about close to 60%, so I will say not too bad.

Car park, we have been making -- I'm talking about the gross profit before depreciation margin because that's an important line of focus on. On the car park side, you see that actually margin has dropped, primarily because we are investing quite heavily in term of building up the operations in a number of new regions. In Australia, for example, we are looking at the New South Wales area, Queensland area, more -- so we have higher, more head count than Europe definitely. We have higher -- more head counts to build the operating teams. So we are winning a number of major car park contracts. So you'll see the benefit of that in the subsequent period, hopefully, with higher revenue contribution coming from this business.

Gaming. I think, gaming, this is a bit distorted because The Star dividend is actually in this figure, and 100% of that dividend is profit, right? So -- but if you look at on a stand-alone basis, if you split that between TWC and Star, you'll find actually the margin of TWC has expanded because of the underlying growth in the business. And we -- I'll talk a bit more about that later on in the slides.

Others at the moment is just -- this is a combination of income from treasury as well as rental. So that is showing 85% because it is actually interest, all gross profit.

Moving on to the next page, you -- on the NAV. NAV, this -- in the -- as at 30th of September, HKD 13.21 per share. Again, impacted a little by the exchange rate movement. If it's not because of that, I think you'll see that, actually, it is higher than the year-end period.

Dividend. I think the focus for everyone should really be on the trend, right? I mean we -- you see that back in 2009, in total, we paid HKD 0.03. Last year, in total, we paid HKD 0.22. If you had bought shares in 2009, I would -- I think I can be very confident to tell you that all of the costs would have been repaid, and you still have cash in your pocket. So that's how strong the dividend stream from the business is. And we're committed to policy of paying out 30% to 40% of our profit.

The balance sheet analysis. I think that we have a number of bankers here. I'd like to just quickly go through Page 15, right? We have -- in fact, the gearing level, if you look at total net debt to total adjusted equity, and adjusted equity meaning you add back the hotel revaluation surplus, you get to a figure of 43.9%. This is net debt to equity. But if you look at the REIT, all the REITs are looking at net debt to total assets, which is really the benchmark that people use. And if you apply that benchmark to our business, right, and we have a lot of hotel assets within our balance sheet, right, the net debt to total adjusted assets is only 24.5%. So relatively actually low gearing overall for our business. And it is a robust balance sheet, and this was helped also by the fact that we did perpetual note offering in the first 6 months. So we do actually manage our balance sheet very conservatively.

So for whoever -- the debt investments here, I think you -- hopefully, you appreciate that. And next time, when we do a bond offering, right, we'll show you -- you factor that into account.

Page 16 is just to show you our liquidity position. So you see that we have a liquidity position. This include, of course, our treasury positions as well and undrawn facility from the banks of HKD 15 billion, right? So that's a big liquidity position. And we also have, as at 30th of September, 7 hotel assets worth about HKD 5 billion, which is completely unencumbered. So no, we haven't borrowed a single penny from these assets.

And this figure exclude the Ritz-Carlton. Again, there's no loan attached to Ritz-Carlton at the moment. We just completed the development, and we paid fully 100% the construction loan, so the hotel assets become unencumbered. Again, it's not -- I should not be sounding too proud about it because I think for effective capital structure, you should really gear up that hotel asset. But because we are doing a REIT offering, right, we decided to leave it as it is. And hopefully, when we are doing the REIT, if that asset is going to be included, then the gearing will be reflected there. And of course, when we sell it to the REIT, the cash will come back to FEC balance sheet.

Application of funds. I think you'll see, really, in terms of what we have planned. This is about HKD 1.8 billion of CapEx. This includes the Queen's Wharf commitment that we, in fact, have been putting in a lot of equity. And you compare that to the liquidity position that we have, that's substantial war chest within our balance sheet.

Page 17, again, just for those who haven't followed us, right, we have a pretty diversified operations across all businesses. I won't go through each of them, but you can read on the slide on Page 17 about -- which give hopefully a summary of what the businesses are.

If you turn on to Page 18, again, it's just to -- for those of you who have just started to follow us, I'd like to reiterate again about the -- our long-term strategy. We adopt sort of a more regional approach in our business. That has given us the advantages of, I guess, investing when cycles are low and hopefully be able to monetize and extract value from development, and that has resulted in long-term growth in our business. And I hope that strategy will result in overall outperformance of our return to investors and shareholders. And we are very proud of this track record with a compounded annual growth rate of 35% per annum over the last 10 years' period.

Looking at our balance sheet on Page 19, you'll see that -- and I think in this period, people start to appreciate the advantage of having a balanced and diversified portfolio. I know a lot of Hong Kong investors would be wary about the Hong Kong situation. To us, yes, we do have a portfolio of assets in Hong Kong. We are also looking at how best to extract more value out of this portfolio. We are watching the situation quite closely as well, whether the impact will be longer term or whether we should be considering converting some of these assets to, say, co-living space. We all know Hong Kong is -- there's a shortage of housing. But as it is, right, I mean you see that we have a pretty diversified portfolio with over 60% of our assets outside of Hong Kong, with over 70% of our revenue generated outside of Hong Kong. So it's a pretty diversified portfolio.

So in that regard, you'll see, hopefully, that our performance versus the other Hong Kong companies, we managed to kind of still be able to maintain our growth despite the situation here.

If you turn on to the next page, I think it's just some photos of our completed projects. So I won't really go through that in detail.

On Page 22, this project is -- it's a joint venture project that we are doing in Gold Coast with The Star as well as Chow Tai Fook. That's being sold at the moment. Subang. I think this project, this is right next to our hotel in Subang, right? We have a lot of surplus, and it's a very good demonstration of how we are able to extract value from the surplus land in the hotel. And there will be about 2,000 apartments. Of course, it will take years to sell and develop that. But the beauty of this joint venture, and this is a joint venture with Mayland, is that they will come up with all the capital cost, and we only need to contribute our land, and we take 50% of the profit plus land cost. So it is actually a pretty good deal for us.

Cuscaden. This is a high-end residential project in Singapore. It is going to take time to sell because high-end products typically are priced at a higher value. It's under construction already. So there's a show flat. So for those of you who are interested to buy an apartment in Singapore, come and take a look. This is -- there's a show flat in Singapore, very close to Orchard Road actually.

Bourke Street. This is a major project that we are doing. The planning is, I think, mostly completed now. It's expected GDV will be about HKD 2.4 billion. So quite a big project with about, I think, 800 apartments. So total expected sellable area is 600,000 square feet. So this will be a major project that we will be executing next year in Melbourne.

The other major launch that is going to be coming, and I've seen the marketing material, is a fantastic-looking residential project in London. So for those of you interested in buying in London, please look at this one. This is a 400,000 square feet, with a lot of amenities. We're going to have those -- hotel lies right on Canary Wharf, on the -- a 5 minutes' walk to Canary Wharf station from our site. And construction work has already started, with the basement work being done at the moment, over 500 apartments and fantastic amenities. So when -- I think the next briefing, when we meet again, I'll show some of the photos of this development.

And then in Manchester, of course, Mr. Taylor, our Head of Manchester, is here today. It's a big scheme. I won't go into detail, but we are going to be -- we're going through the planning. We've got the master plan approved. It's going to be at least a 10-, 15-year project. And we will have consistent -- hopefully once this project gets going, consistent revenue coming through from Manchester, from this project. And there will be, in addition to MeadowSide, the next and the 3 -- 4 phase -- 3 phases in MeadowSide, the next launch will be a project in -- a small 80 apartments project that we'll be launching hopefully early next year. And we're going through planning at the moment for that particular project. And then the bigger one will be a project called Victoria Riverside, which is right next to MeadowSide. And that will be several hundred apartments. And also houses, we also are going to be building some landed houses in that development.

Singapore, the one in -- big one is going to be Holland Road. It is in Prime district 9. Is that -- this is -- well, it's either 9 or 10. It is in the very prime freehold location. There will be about 320 apartments with 6 blocks. At the moment, we -- the plan is that we'll be using the Artra show house in Singapore. If you visit Singapore, you'll see that actually the whole site has been flattened already and some ongoing construction going on there at the moment. And the launch of this will be, I think, maybe right after Chinese New Year next year.

Moving on to the hotel division. I'm just mindful of time. We -- the plan at the moment is we will add another 14 hotels over the next 5 years or so, primarily located in Australia, U.K. as well as Malaysia. So far as second half performance is concerned, you will have 2 hotels that will be contributing. One is, of course, Ritz-Carlton in Perth. The other one is the Oakwood in Singapore. And Oakwood is more steady. This is -- when we bought it, this one is already running. And there are some -- there is an asset enhancement opportunity that Oakwood was operating or has been operating the -- some of the rooms as long stay. So quite big, 2 bedrooms, and there's some opportunity to really convert it into hotel rooms and some more revenue opportunity there.

Ritz-Carlton, it will take time to stabilize. But I hear very good feedback overall, so far, some people even say it's the best hotel in the entire Australia. So we'll see. I mean for those of you who are visiting Perth, please come and stay with us.

So I think the other sort of message I will give you is also the spread, the geographical spread of our hotels. And all this, right, I mean when we do the REIT, only a portion of the completed hotels are going to be -- not all completed, select group of completed hotels in the 4 regions will be in. But we will offer a right of first refusal to -- actually for the REIT to acquire this hotel. Should we want to keep monetizing it, we have a vehicle once the REIT is up and running, right, we have a vehicle that we can keep growing. And that will help, hopefully, FEC to recycle the capital. You build, you sell it into the REIT. You raise equity, you monetize the profit. And then you kind of get guests going, and that is what we see as one of the very important strategic rationale for us. That said, we are not limiting the scope of the REIT to just FEC Hotel Group acquisition, but they should -- I told the team that we just hired, right, we should be actively also looking at third-party hotel acquisitions as well. So hopefully, we'll see good momentum once it's established for that vehicle to keep growing.

And Page 31, actually, I don't need to say this more. I mean, as we develop our hotels, the yield profit within that portfolio will keep growing. And we have to find a way, a better way where we control the assets still have -- should be able to recycle the capital in a more effective manner, and that's what we are doing with the REIT.

Kai Tak, very quickly. It's a very big project. This is probably one of the biggest project that FEC group is undertaking in Hong Kong. Now we are looking at more a 4-, 5-year horizon at this project. Why it's exciting is because government has committed actually billions of dollars to build a big sports park in this location. And many, many years ago when we were still using Kai Tak as the airport, the infrastructure is actually already there, and the site is actually at the front of the runway. If you remember, Kai Tak, right, the front of the runway is where it is, and it's actually overlooking the sea, yes, the harbor. So it's got the hotel. That means that there will be a hotel, and there will be an office tower, and the office is overlooking the harbor. So you have the full sea view.

And the beauty of this is that we will get a lot of event traffic, and it will be a very, very actively used sports venue. And attached to this sport venue, there's actually going to be a very big mall as well. So we will be able to hopefully benefit from the traffic coming out of the mall as well.

And then on the runway, yes, on the runway facing the harbor, there will be a row of F&B, which is a bit like, what do you call that, fisherman's wharf, yes, the restaurants. And then we're kind of like in the middle. So -- and for people who are working from the stations to the big stadium will pass our site. They have to go through our site. So a lot of -- it's strategically located, and we will start construction of this next year.

And on HKD 7,100 per square feet. That's 80% cheaper than the land that was bought last week by -- some kind of cost allocation is better, you can argue, but this is not bad, too, so...

I think I mentioned about Oakwood. I'm going to skip that. The 268 rooms opportunity for asset enhancement is already stabilized. It's a joint venture that we did with AMTD. The likelihood is that this hotel will be included in the REIT as well, right? So...

Perth, I mentioned this. It's already open, 205 rooms, 1 of the best hotel in the world, facing the river -- I have a picture -- a short video, 18 seconds. We'll show you later on.

And there's another hotel that is coming onstream, which is J-Hotel. This is right across from our Dorsett Regency Hotel in KL. This wasn't featured in the last few presentations because it's -- it is a little property that is property that didn't get featured on the balance sheet before this was so small, but we managed to design it as 154 rooms hotel, which will be open, hopefully, this financial year. So by -- before -- I mean the team promised me earlier, but given this is in Malaysia, I have a bit of a reservation. So I say maybe end of March, we will open. So that's a fantastic little boutique hotel that we'll be opening in this financial year. So I don't think we'll see the contribution from this, this year, but next year, you'll see hopefully better contribution.

Car park operations, I think I mentioned this. We added 6,600 bays. In the last 6 months, revenue was up 11%. Again, we're investing quite heavily in term of the team. Geographically, we're expanding in more regions. That has resulted in, hopefully, the growth and forward as well, right? So I think organically, this business should be able to grow high single digit, low double digit every year.

Care Assist is our -- I mentioned this a few times before. It's a state-of-the-art car park management IT system that we have installed. So when we have critical mass in the U.K., for example, we will also do that. And we're also managing properties. This added about 20% new contracts, 212 (sic) [112] contracts now.

Trans World gaming site, we are -- again, it shows you really the performance. This is just purely on gaming, right? Its revenue is $120 million. We added some machines. We added some tables. And I think the new initiative there is that we'll be putting some poker games.

Austria at the moment is closing down their poker operations, so we are seeing -- we are going to be seeing, hopefully, more traffic from these players coming to our site if we can introduce the poker games. So that's really what we are doing there as a new initiative. And we're also talking to new slot machine supplier to come to the market to -- so that we can offer more new slot games to our players there. I think the big opportunity there is more the local Asian premium mass customers, and we need to do more to get, I guess, the local Asians to come to our properties.

Our alliance with The Star has been ongoing for many years now and is yielding very good results with a number of joint ventures. I wouldn't say too much. I think our view is that the stock is undervalued because there's a lot of assets that they have. They're not fully utilizing it. And also, I think if they were to find clever way to segregate the nongaming and the gaming partner, there's also going to be value-enhancing opportunity so far as that property portfolio is concerned. That's why we -- the key to work closely with them, help them unlock those value by developing the surplus land around the area. So we're doing -- quite actively working with them on Gold Coast, on Sydney and also our joint venture in Brisbane.

The Queen's Wharf project, if I may just spend 30 seconds talking about it, is going well. We have -- we are going out to the bank market now for the syndication of the loan. It's a big syndication, and we hope to close that syndication end of this year, early next year. And equity, I think, is we'd be putting equity in, but this will be a fantastic project. So we will have a residential launch of this project next year. Come and visit us. Buy a unit. I guarantee you it will go up in price because it's such a fantastic development, right? So no, I'm not guaranteeing that, but I think there's a lot of upside for this development. I'll show you a video later on about Brisbane.

Mortgage platform, this is David Hinde's empire, and the track record of the growth of the AUM, $68 million back in 31st of March '18. So we are in 30th of September 2019, and we are now at $853 million, right? And so there's a fantastic results overall, very good execution by the team. And we hope to report next time when we meet, right, over again, right, so that's what David has promised to do, right? Guarantee, guarantee.

And I think there's also a lot of, for the bankers here, a lot of securitization opportunities as well. The -- I mean this business is like a bank business where you have to borrow cheap and then you lend up at the higher rate than you borrow, and then you take the net interest margin, right? So -- and then -- so basically, relying on wholesale funding and then we lend up retail.

And the reason why people come to us is because the banks in Australia are not lending to international buyers of the properties in, say, Australia because the -- they don't know about the credit. But what they don't understand is that, look, the people who can buy overseas is either richer, better credit people and their LTV's actually pretty low, right? I mean on a blended basis, we are at about a 59% LTV. So the customer that's always putting in 40% in equity, you're lending them 60%, and you're taking a NIM. And the credit is better, and yet they're paying higher margin at a local market. This is where the, I guess, arbitrage opportunity is for us, right? And initially, we set this up and say, "Oh, we service our customer." But as it grows, it grows, it grows, now our development only accounts for 3% of the entire book, right? So -- and it will get smaller and smaller. But what we're saying is that it's now becoming an independent sort of business and not relying so much on the FEC customers.

But having said that, I think there's still a lot of opportunities to channel customers to them. We are at the moment only in Australia, but hopefully, we can also go to, say, the U.K. market as well. So that's, I guess, the next phase of the development for the group here.

And also in New Zealand, I think there's an opportunity that we're working on in New Zealand where, potentially, we can also lend to international customers that wants to buy property in New Zealand so -- which I think we are working on at the moment.

So in conclusion, I'd like to just say that in terms of property development, right, we -- the visibility is good. We have $11.6 billion locked in, and we'll see the revenue coming through in the next 3, 4 years. There's a pipeline of $51.4 billion, of which we have $8 billion -- almost $8 billion launching in the next few months. So hopefully, that will take -- of course, it will take some time to digest, but it gives a very, very good pipeline in this business. And we'll keep -- I guess for us or this business, we don't land bank too much, but we keep recycling our capital. When this digest, we buy land and we recycle that. That business will continue to grow.

Hotel, yes, a bit of headwind in Hong Kong, but we have 14 hotels under construction. The headwind will be mitigated, hopefully, by the new hotels, Ritz-Carlton, Oakwood, J-Hotel is our new hotels coming onstream.

The potential spin-off, I think that's a big one. I think -- and we'll be spending a lot of time and effort to work on that. And by the way, Alexis, I think for some, you're seeing him on this result stage. He came from HSBC before, he was running the capital markets group there, and he's putting in a lot of effort to drive this initiative. So hopefully, we have very, very strong execution to push through this initiative.

Car Park, and I mentioned the organically you should grow, is good basically investing in the infrastructure. Hopefully, you'll keep seeing the organic growth that we have been seeing in the last 10 years.

Gaming, honestly, we -- it was kind of an opportunistic acquisition for us on the Trans World. But that business is okay. I mean, we are not actively looking to buy a new casino and all that. I think what we will be doing is we prefer to say, do The Star model, let the casino operator drive NAV, as a developer, try to see how we can extract value out of it. And that business, hopefully, we are able to add value by leveraging our Asian customers' connections, and that's what we are seeing in that business.

So with that, I'd like to just conclude by saying we pride ourselves as maintaining a very good corporate governance. We won a lot of awards in the last 12 months in IR, in corporate governance, and I think we got the 30 Years of Corporate Governance Awards by Asiamoney, which is, I think, one of the sort of very prestigious financial publication, so very proud of that.

And with that, I think I'll just conclude my presentation. Thank you very much. And I'd like to just play 2 quick video and then Q&A. Okay?

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Unidentified Company Representative, [3]

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Thank you, Mr. Hoong. Before the Q&A session, we are going to play a video about the (inaudible) or hotel projects. They are Ritz-Carlton Perth and the growth story of Brisbane, Queensland. Let us watch.

(presentation)

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [4]

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So this is our development (inaudible) complete (inaudible). So that's our property in Perth. That is just open. So when you next visit Perth, come to stay with us, yes? And the next one I'll show you (inaudible). This is what Brisbane looks like and the opportunity there, yes?

(presentation)

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [5]

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All right. So hopefully you (inaudible) Yes, we're not interested in JLL but -- so that hopefully gives you an idea of what Brisbane is about and opportunity there. And again, we'll be launching that project in -- around -- maybe until right after the Chinese New Year next year. So please do come and visit us in that exhibition, and we can talk a bit more about the project. In particular, the residential park, right, which I'm pretty sure you'll like it when you see it.

All right. So with that, I think why don't we go to Q&A.

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Questions and Answers

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Unidentified Company Representative, [1]

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Okay. Thank you for watching. We'll now come to the Q&A section. Please introduce yourself with your name and institution before raising questions. Participants who joined the live webcast are also welcome to raise questions on the webcast platform. Now let's have the first question. Okay.

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Jacky Chan, AMTD Asset Management Limited, Research Division - Head of Property Research [2]

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I'm Jacky Chan from AMTD. I've got a couple of questions, and I'll probably kick off with the spin-off REIT. In terms of the REIT, like what's the hotels -- like what are selection criteria for like putting the hotels into the portfolio of the REIT? Like how -- like why or why not are we putting the whole portfolio of the hotels? Like can management shed some light into that please like -- second question is also on the hotels. And like we know that the environment is pretty challenging at the moment and like across the whole portfolio as well. Like what are the strategies or action items that we're taking at the moment to mitigate some of them and try to improve the performance going forward like in terms of ADR or whether it's occupancies? Like how is the impact at the moment? And how are we trying to improve either of these figures? And then the third question is on the mortgage platform. I mean like I just want to know a little bit more in terms of the -- are we using our balance sheet to operate this mortgage platform? Or how does the funding side comes in, like where -- as Chris mentioned just now that it's mainly a NIM kind of business, so just wanted to know a little bit more.

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [3]

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Yes. I think I'll go and answer the last question first and the second question, and then I'll get Alexis to answer the first question. So just on the mortgage platform, are we using our balance sheet? Yes, we have committed up to AUD 75 million to provide in terms of the mortgage financing but not on the senior component but more on the junior component. The junior component meaning is still secured on the first mortgage, but we ran behind the senior creditor. And you can get about, I think, 8-plus percent return for that. And that's really the extent of our commitment to the platform that really helps -- again, it's just not coming from us, but they are also our partners. Both PAG and Metrics are our joint venture partners that they have also committed an equivalent amount to come in. And that actually is not the constraint because there are also a lot other investors across the universe that will be interested to invest given the return is actually pretty good, right?

Well, in addition to of course getting a fixed income return for that investment, we also have a share of the profit of the main operating company, which is really taking both the NIM, the net interest margin as well as fee from the customers. So when customers apply for a mortgage loan, they take an upfront fee. So we -- the company, the operating company actually benefits from that income stream as well.

And most of the funding source actually comes from third party. So investment banks, commercial banks, Korean banks, Asian banks, U.K. financial institutions, they are all actually in this space. And our idea is really, once we have seasoned it -- I think the plan is really going to a rating as a peer rating at the moment, and we will then -- once we get the rating -- and the indication is it's a very, very high credit rating for the loan across different tranches, we will then go to the securitization market to get it refinanced at a lower rate. And that would help expand your net interest margin for the business, all right? So that's really the ways.

So don't worry about the drain on our balance sheet to finance the growth of the platform because, while we are committing to that equity stream but now -- sorry, the junior tranche of that portfolio, that there's actually a lot of investors who actually wants to come in and participate. That will help drive the growth of the loan book as well. And we are all just beginning to start to talk to some, also, Asian banks.

But this is a quite unique instrument. It is quite established in certain countries like Australia but not so much in Hong Kong or China. China, yes, I think there's a lot of trust structure that we've seen but not Hong Kong, not Singapore. But it is something which is actually quite established in other markets. So we think that we can continue to attract good, cheap funding source.

In fact, I think the cost of that is coming down not because interest is now -- that is a factor, but the bigger factor is also the -- as we are more established, the credibility of the business has helped us to attract more funding at a cheaper rate. So that -- we expect that the NIM of this business will continue to widen to -- the spread will expand and we'll get more NIM from this business as it grows.

As to what we are doing for the hotel portfolio, I mentioned this is now -- I mean the big problem is not -- we're not good at operating. The big problem is more the macro environment in Hong Kong, which is impacting the financial -- it's affecting everyone really. I mean it's not just us, right? The retail is hardly hit as well.

But for us, I think the -- I mean there are some properties that may be suitable to convert to -- if the long-term view is that, look, we want to maybe create more other products like serviced apartment and co-living space. We can do that, and that will help to really drive higher EBITDA for the portfolio, right?

To give you a specific example, Cosmo Hotel, which is next door, right? I mean I keep saying the team. We -- that's a perfect opportunity to convert. And if you do the conversion, say, it takes a year and you move all the traffic to this hotel, it drives up the occupancy of this hotel while you do the renovation. And given it's also beginning to start aging, maybe it's a good time to be considering that. So these are specific -- I'm giving you very specific examples of how we can yield opportunity. I mean I don't want to say opportunity, but it gives the situation to improve the operating performance of the asset.

The first question, I think, is about selection criteria.

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Alexis Adamczyk, Far East Consortium International Limited - Head of Corporate Development and M&A [4]

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So we have about, as you know, 28 hotels in our portfolio in more than 8 jurisdictions. So it's quite a big portfolio, but we need to come up with, as you said, a way of deciding which assets will go into the REIT.

Now if we were to put everything, it's a very complex process to do an IPO with 28 assets across 8 jurisdictions, so I don't think it's very realistic. In addition, I think some of the assets in the portfolio are still in the process of either ramping up or do you need a bit of refurbishment or we need to fix a few things with the title and so on. So by and large, what we've been looking for are income-producing assets, okay? We're looking at assets within 4 jurisdictions. We've decided on these 4 jurisdictions because we think they are attractive jurisdictions for investors.

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [5]

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And same jurisdiction -- the same Anglo-Saxon or U.K. jurisdiction, yes.

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Alexis Adamczyk, Far East Consortium International Limited - Head of Corporate Development and M&A [6]

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Yes. So with Australia, it's a good market. Singapore, obviously, a very good market at the moment. The U.K. has been doing extremely well, and we decided to put a little bit of Malaysia in the portfolio because we do have a number of hotels in Malaysia.

We are going through the process with the Hong Kong Stock Exchange. So we filed the PN15. We will go through that process over the next few weeks to effectively agree together on the exact nature of the portfolio because the Hong Kong Stock Exchange will also be very focused on the mandate of the REIT and also the delineation of the business between the REIT and FEC going forward. But by and large, we've tried to balance interests of new investors coming into the REIT and of course, of the existing investors in FEC.

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [7]

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Next question? Yes.

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Aditya Salim, [8]

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This is Aditya from Chartwell Capital. So I've got 3 questions. So the first one is that if the spin-off is successful, the REIT spin-off is successful, how should we think about the dividend policy on the parent company level? And the second question is -- just want to confirm regarding the mortgage business. So the FEC own project is currently 3% of the loan book. This is correct. And lastly, still regarding the REIT. Have you talked with the banks? And roughly, can you maybe give some guidance on maybe how much interest are -- the bank is willing to lend you on REIT level?

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [9]

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Sorry. What's the last question?

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Alexis Adamczyk, Far East Consortium International Limited - Head of Corporate Development and M&A [10]

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Gearing for the REIT.

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Aditya Salim, [11]

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I mean the borrowing costs, roughly how much do you think you can get on the REIT level?

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [12]

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Sure. Dividend policy, I think we'd just be consistent, right? 30%, 40%, we've been consistent throughout. I don't think we will change that policy.

Sorry, what's your second question? Mortgage...

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Alexis Adamczyk, Far East Consortium International Limited - Head of Corporate Development and M&A [13]

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3% of our loans [for FEC group] is our properties. [Is that going to change]?

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [14]

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There's no policy, and so this really just whatever business they can get, right? So at the moment, it is about 3%. 3% is coming from our projects, but for -- if you're going to be doing a securitization, there is actually a limit -- a maximum limit per development for the loan book anyways, which is around 5% per development, right, because they wanted diversification, so in order to get a better rating overall for the portfolio, right? So again, it's whatever business that they can get from our customers, we're not stopping that at all. But it's just -- this is just a figure that shows the actual situation, right? We're not limiting it in -- specifically.

In term of the borrowing cost, again, we are in an environment where I think it is actually quite attractive borrowing cost at the moment. I don't want to be too specific here. But I think that is -- depend on regions as well, right? There are specific region which is very low and the locations that we've chosen, right? I mean U.K. interest rate is not high. It's pretty low. Australian interest rate is actually lower than the U.S. interest rate. Singapore interest is not very high either. And Malaysia, the interest rates actually are also coming down, right? So it really varies from region to region, but it's not high overall, right? I can't be too specific, but I can tell you that's also one of the reason why we chose this portfolio as well.

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Unidentified Company Representative, [15]

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Thank you. Due to the time limit, we would like to invite the last question of the day.

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [16]

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Can we see whether there's any questions from...

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Unidentified Company Representative, [17]

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Yes, are there any questions from the webcast platform?

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [18]

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No? Okay. Sorry, go ahead.

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Unidentified Company Representative, [19]

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So we'll give the chance there to the gentleman in the middle.

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Jacky Chan, AMTD Asset Management Limited, Research Division - Head of Property Research [20]

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Yes. So if there are no other questions, I just want a follow-up question also on the hotel portfolio as well. Yes. Just looked at like the revenue numbers on the hotel's front are holding up pretty strongly, like excluding Hong Kong, so outside of Hong Kong. But for example, in Europe and in other places like I see that the profit seems to have declined quite a bit. Like is that because of profit margin? Like are there any specific reasons for like expenses and all that?

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [21]

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I would encourage our investors not to look so much at the segmental profit line. I can't be too explicit to explain that, but it's something to do with tax, right? So we can't be too specific. But looking at the bottom line is what I'd encourage you to look at, right? There are allocation of calls and all that, right, which is not so straightforward. But...

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Jacky Chan, AMTD Asset Management Limited, Research Division - Head of Property Research [22]

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Another question just on the property development business. Like the profit margins like what -- can you give us some guidance in terms of like all the presold properties based on our completion schedule that we're building? Like what's the profit margin guidance that we can...

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [23]

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Okay. I can tell you that I think Melbourne will be higher than Perth. I think Brisbane is actually very good as well because of the low land cost. Perth is expensive. That building is expensive to build to be frank, right? So that's why the margin there is a bit lower, but -- and if you go high, land cost is also lower. So I think you -- I'm pretty confident, I think, you'll see higher margin in Melbourne and Perth -- and Brisbane.

China margin, the remaining [store] is very good, right? I think the U.K. margin, it depends on location. I think London is better than Manchester. And I think a blended figure of somewhere between 30 to 40 or 30 to 35 would not be unreasonable, yes?

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Unidentified Company Representative, [24]

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All right. Thanks for attending our presentation. We will appreciate it if you can help fill out a short survey regarding our IR performance during the first half of the financial year 2020 on your hand. [Also], you can answer your survey at the reception. Thank you.

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Cheong Thard Hoong, Far East Consortium International Limited - MD & Executive Director [25]

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All right. Thank you very much. Thank you. I mean if you want to have a full-on one-on-one, please contact our IR and we'll arrange one-on-one meetings with you, so yes. Thank you.