The Group has diverse capabilities with activities encompassing property development and investment, hotel and serviced suite operation, property and project management, aircraft leasing, pub operation and investment in infrastructure and utility asset operation.
The Group's profit attributable to shareholders for the year ended 31-12-2019 amounted to HKD 29.68 billion, a decrease of 27.0% compared with previous corresponding period. Basic earnings per share was HKD 7.8881. A final dividend of HKD 1.58 per share was declared. Turnover amounted to HKD 96.32 billion, an increase of 49.4% over the same period last year, gross profit margin down 6.5% to 48.4%. (Announcement Date: 19 Mar 2020)
Business Review - For the year ended December 31, 2019
The property market in Hong Kong was affected by social incidents during the year. Nevertheless, continuing demand for residential properties, coupled with low global interest rates and the relaxation of the cap on the value of the properties under the mortgage insurance programme announced by the Hong Kong Government in October, supported the local property market. With the recognition of profit from the sales of Ocean Pride and Ocean Supreme, My Central and Harbour Glory, a significant increase in property sale contribution was recorded in 2019 as compared to last year. On the Mainland, property sales momentum slowed due to market conditions and the Group’s project completion schedule on the Mainland was adjusted accordingly. The Central Government’s long-term regulatory mechanism and its directive “housing for residents and not speculators” supported steady market development.
Revenue from property rental was slightly less than that of last year. 5 Broadgate in London made its first full-year contribution of rental income to the Group in 2019, which partially offset the loss of rental income due to the disposal of The Center in 2018 and the redevelopment of Hutchison House which commenced in 2019. The redevelopment programme is on track and Hutchison House is well-positioned to become a landmark modern Grade A office building in Central. OP Mall along the West Rail Line in Tsuen Wan will be officially opened in the second half of 2020 and pre-leasing response has been encouraging. With a gross floor area of over 430,000 sq. ft., it is expected to contribute rental income in due course. The Group will continue to evaluate acquisition opportunities and optimise its portfolio for steady income yield and long-term capital growth.
Hotel and Serviced Suite Operation
While contributions from serviced suite operation remained stable, hotel operation was significantly impacted by a decline in visitor arrivals and market sentiment in the second half of the year. An overall decrease in contribution amounting to approximately 2% of underlying profit was recorded as compared to last year. The operation is expected to face increasing pressure in the coming year. The new extension of Harbour Grand Kowloon in Hung Hom debuted in August 2019, and Hotel Alexandra in North Point is expected to welcome guests in the first half of 2020. These two hotel projects add approximately 1,200 rooms to the portfolio. At the year end date, the Group’s hotel and serviced suite portfolio comprised approximately 15,000 rooms.
The aircraft leasing business underwent a rebranding exercise to streamline and strengthen its global leasing platform. The new brand, AMCK Aviation, is focused on delivering expertise and long-term stability for customers and partners. With solid operational performance in 2019, profit contribution from aircraft leasing for the year amounted to HK$1,515 million as lease income improved over last year due to an increase in the number of aircraft. In view of the current conditions in the travel and tourism sector, the Group will continue to manage its operation prudently and maintain a diligent and conservative approach when determining its development strategy in the years to come.
In October 2019, the Group acquired Greene King, a leading integrated brewer and pub retailer in the United Kingdom which, prior to acquisition, was listed on the London Stock Exchange. Greene King operates over 2,700 pubs, restaurants and hotels across England, Wales and Scotland and has a rich heritage, strong real estate backing and a healthy financial profile. This newly acquired business has started to make profit contribution to the Group.
Infrastructure and Utility Asset Operation
Infrastructure and utility asset operation is a key contributor of steady recurrent income to the Group. CK William Group contributed HK$1,548 million from its businesses comprising electricity distribution, gas transmission and distribution, as well as the provision of electricity generation solutions for remote customers in Australia and other countries. Reliance Home Comfort contributed HK$1,086 million from its building equipment and services business in Canada. ista contributed HK$1,260 million from its fully integrated energy management services business in Europe. The economic benefits of infrastructure businesses received by the Group under an economic benefits agreement contributed HK$630 million. The Group will continue to source global diversified infrastructure and utility assets, and related investments to strengthen quality cash flows and enhance the overall portfolio value.
Business Outlook - For the year ended December 31, 2019
The sudden and rapid spread of the novel coronavirus across the globe covering Asia, the United States, Europe and the Middle East is expected to put pressure on most economies due to disruption of business activities and weakened sentiment in the consumption and tourism related sectors. The recent plunge in global oil prices will add to the woes resulting from the pandemic, severely upsetting the economic growth of most countries which are already on a slow growth trajectory. Despite the agreement of a phase one deal in early 2020 between China and the United States and low global interest rates, uncertainties concerning Brexit and other factors remain and warrant caution.
China maintained its real GDP growth at above 6% in 2019, but is expected to face various challenges in the coming year due to the pandemic and its inevitable impact on the economy and society. However, with long-term positive economic fundamentals and given the Central Government’s policies to stabilise the economy, China is expected to make a swift recovery with GDP growth at a pace faster than other major nations once the pandemic is over.
Hong Kong’s economy has been unavoidably affected by internal and external uncertainties. The property sector in Hong Kong is expected to face varying degrees of challenges. Changes in market conditions and local housing policies will continue to be determining factors. Hong Kong should prepare itself to capture different opportunities following the recovery of the economy on the Mainland. Underlying housing demand and purchasing power will support steady development of the property market over the long term.
The Group has in recent years vigorously pursued quality investment opportunities in and outside of Hong Kong with stable recurrent revenue and growth potential in order to improve the quality of earnings as well as cash flow, and increase the proportion of recurrent income contribution. The Group’s investment strategies have proven to be effective, and quality recurring income is expected to increase over time. In the midst of the current economic turmoil, the Group will adhere to its motto “Advancing Without Forgoing Stability”. As the Group continues to explore new investment opportunities and grow organically around the world, Hong Kong and the Mainland will remain important markets for the Group.
The Group has maintained “A/Stable” and “A2 Stable” credit ratings from Standard & Poor’s and Moody’s respectively. As at the year end date, the Group has a net debt to net total capital ratio of 5.2%. With solid financials and recurrent profit contribution and cash flow from diversified businesses across sectors and geographies, the Group is well-equipped to seize global growth opportunities and participate in Hong Kong’s recovery when the time comes. The Group remains cautiously proactive about its future plans.
The unrest and the austere challenges posed to Hong Kong by months of social incidents since mid-2019 have been aggravated by the pandemic, and this has resulted in economic impact and communal anxiety. 2020 will be a difficult year especially for certain business sectors such as hotel, tourism, retail, catering and property. Nonetheless, Hong Kong’s overall fundamental strengths remain solid, and the city has in the past demonstrated determination and resilience in the face of adversity and during times of virus outbreak. Coupled with the backing of the Mainland in sustainable economic development, Hong Kong is expected to weather the present difficulties and overcome the challenges. Recovery of economic momentum and restoration of domestic and international confidence in Hong Kong will take time, and require supporting policies of the Government as well as the community working together as a whole.
Source: CK Asset Hold (01113) Annual Results Announcement