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Edited Transcript of 17.HK earnings conference call or presentation 28-Feb-20 9:45am GMT

Half Year 2020 New World Development Co Ltd Earnings Presentation (Chinese, English)

Central Mar 19, 2020 (Thomson StreetEvents) — Edited Transcript of New World Development Co Ltd earnings conference call or presentation Friday, February 28, 2020 at 9:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Aldous Chiu

New World Development Company Limited – General Manager – IR

* Chi Kong Cheng

New World Strategic Investment Limited – Chairman

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Presentation

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Aldous Chiu, New World Development Company Limited – General Manager – IR [1]

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[Interpreted] Good afternoon. Welcome to New World Development Company Limited 2020 FY Interim Results. I’m Aldous, the Head of the Investor’s Relationship Department and moderator for this session.

Let me introduce members of our management. First of all, Mr. Adrian Cheng, Executive Vice Chairman and General Manager; Ms. Echo Huang, CEO of New World China. Mr. Jim Lam, Director of Finance and Accounts.

I will now pass the floor to the management.

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Chi Kong Cheng, New World Strategic Investment Limited – Chairman [2]

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Good afternoon. Our core businesses include investment — property development, property investment, road construction, aviation and insurance. In the future, in property investment and property development, they are our dual-core engines, and we are well positioned in China. So we are going to move towards a very good direction.

For first half 2020 FY, according to our strategy, our mainland property development in Hong Kong property investments had enjoyed business growth, segmental business growth. However, because of different factors like market development, social incidents and Hong Kong property development portfolio, our segment business results and underlying profit had shown decline. And because of adjustment in the property market, change in the investment property fair value was a lot lower than same period last year.

As you can see, if you look at our revenue, in 2019, in the first half, comparing with the first half of 2020, it declined from HKD 49.2 billion to HKD 39.2 billion. So this is because in the interim period of 2020, starting 1st July to 31st December, we do not have much to record or to book as revenue. We mainly rely on sale of our inventory. And last year, in the interim period of 2019, we had around HKD 20 billion confirmed revenue during that period, recognized revenue. So because of timing, so in the first half, there’s no recognition of revenue. But then from January to 30th of June, we will have more revenue recognition.

Financial condition of the group is stable. In terms of cash and bank balance, around HKD 63.6 billion; usable bank facilities, HKD 31 billion; and we have around HKD 94.6 billion available capital. Financing cost is stable, 3.7%. Our basic profit was down 7% to HKD 3.92 billion.

In FY 2020, for loans that will mature, the refinancing work has all been completed. And at present, we are working on refinancing of loans maturing in 2021, and it is expected that at the end of June 2020, all this work will be completed. So in other words, for this FY and also for FY 2021, in the coming months, our refinancing work will all be completed. So in the future, apart from the HKD 94.6 billion utilizable capital — actually, all refinancing issues have been solved. So our financial position is very sound.

Net gearing ratio, 42.2%. It has risen because in the period, we acquired FTLife Insurance, the Ningbo Project and the remaining interest, and the Hangzhou, Wangjiang, Cheung Shun project. The management decided to pay out interim dividend of HKD 0.14 per share.

And then for property development, as such as now, in terms of booking in the interim period of 2020, we do not have any new property being booked so we only sold our remaining inventory. So contribution from Hong Kong will decrease. Now in the same period last year, the revenue booked in Hong Kong came down by 83% from HKD 21 billion to HKD 3.7 billion. So this is just a timing matter.

For Mainland contribution, you can see that it has risen 59%. For Greater Bay revenue and segment results, they grew 86% and 166%, respectively. Besides, given the brand effects and also our unique positioning, our GP margin of sales had broken the record in Hong Kong, 48%. So it went up by 21 percentage points in Mainland. GP margin was 61%, up 25% in GBA, more than 70%.

And then if you refer to rental properties, that is investment properties with rental income, they offer us long-term operating cash flow. Our property investment performance was excellent. This is mainly because of the contribution from Victoria Dockside and K11 Museum. So for Hong Kong property investment revenue and segment results, they were up 36% and 20%. And then within the period, the Hong Kong property investment or investment property flagship had increased by 100%, around 1.5 million square feet.

Now in 2021 FY, K11 MUSEA and K11 ATELIER Kings Road are going to make full year contribution. In Mainland China, there are a number of city complexes that will be launched. So through K11 and D. PARK brand operation, they will stimulate the leasing business contribution in Mainland China.

In November 2019, NWS completed acquisition of FTLife Insurance. And during the period, new contribution was offered together with roads, construction, aircraft leasing. Well, they are core businesses of the group, and they enjoyed stable growth within the period.

Market development. U.S.-China trade war had restricted the performance of NWS concerning strategic businesses like facility management, traffic. They are affected by social incidents and also a decline in the number of inbound visitors.

For hotel operation, they incurred a loss within the period. So average occupancy in hotel and also hotel room rates have been affected to a different extent in Hong Kong. It is expected that in Hong Kong, hotel’s performance within the short — near-term will be affected by the epidemic. And in 2020, there will be further decline. For the newly opened Hong Kong Rosewood Hotel, because of this reason, segment results was a loss.

Even though within the short term, various businesses performance may be affected by market condition, the group’s development still has a very sound foundation. As such as now, concerning available cash resources, we have more than $90-odd billion, and we do not have the need to face refinancing pressure. At the same time, we have put in place a number of enterprise directions to realize our strengths. These include sustainable and progressive dividend policy, stable contracted sales. For example, in the future, in the coming 2 years in Hong Kong contracted sales, it would be in the range of HKD 15 billion to HKD 20 billion. So I’m talking about the coming 2 to 3 years.

Our recurrent rental income is in acceleration mode. For K11 ATELIER Kings Road and K11 MUSEA, they are going to make full year contribution. In Mainland China, in 2021, 2022 and 2023, there will be a lot of recurrent rental income. In Ningbo, Wuhan and so on, K11 will enjoy a lot of rental income, which will be in acceleration mode.

Next, we are well positioned in the GBA with old city redevelopment to sustain growth. We may be the only Hong Kong enterprise to be able to deliver good results in GBA in terms of old city redevelopment. And in the coming 2 to 3 years, this will help us accumulate a lot of land bank, which will be released in 2022 and 2023.

Our financial condition is very good. We work ahead of refinancing schedule. And if you look at our net gearing ratio, it will be capped at around 40-odd percent. For our noncore assets disposal — well, the progress is very good. We have announced that we have sold 2 assets for HKD 3 billion. And this year, for the whole group in disposing noncore assets, we hope to reach HKD 15 billion. Besides, New World Development is a leader in Asia corporate social value, so we have very innovative mindset. And we will shoulder more social responsibilities in order to create more shared value for stakeholders.

In face of the recent epidemic, we are the first listed company in Hong Kong,to donate HKD 10 million to fight the epidemic. And in China and Hong Kong, we implemented flexible working hours. And the Hong Kong construction site has been suspended for 2 weeks.

In the market, there is continuous shortage of masks, and we are going to produce and manufacture masks in Hong Kong, and the mask will be distributed to nonprofit-making groups for free. And it is expected that we are going to produce 200,000 masks per day. And so far, our group has already donated RMB 15 million and 200,000 masks to support the anti-coronavirus work. So in the future, we will be prudently optimistic. We will be cautious in our work, and we will ride out the difficulties with various stakeholders and share our results. Thank you.

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Aldous Chiu, New World Development Company Limited – General Manager – IR [3]

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Thank you, Adrian.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

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