The Li Ka-shing family couldn't hold on either! CK ASSET's property sales revenue dropped by 40%, "We don't have a must-win mentality"

With a tired look, CK ASSET Chairman Li Ka-shing and the management team walked in front of the camera to announce the mid-term performance for 2024 to investors.

In the past half of the fiscal year, under Li Ka-shing's leadership, CK ASSET's downward trend in net profit has not stopped. The good news is that the seeds sown in overseas markets are gradually entering the harvest period, providing CK ASSET with room to maneuver.

According to CK ASSET's 2024 interim report, during the reporting period, CK ASSET achieved a net profit attributable to shareholders of HKD 8.63 billion, a decrease of 16.47% from the first half of 2023, which was HKD 10.331 billion. The reason for the decline in net profit points to a decrease in profit contribution due to reduced property sales revenue recognition. In the first half of this year, CK ASSET achieved property sales revenue of HKD 4.635 billion, a year-on-year decrease of 43.79%; and revenue of HKD 1.821 billion, a year-on-year decrease of 48.41%.

Regarding the gains and losses of various projects, Li Ka-shing is not particularly concerned. "Given our insufficient past investments in land, the decline in development income is not surprising to anyone. We are pleased to maintain a very strong balance sheet during uncertain times."

Unlike other heavy asset companies, CK ASSET's leverage ratio is only 5.5%.

"Our leverage ratio is low enough, and investments outside of Hong Kong also have quite high structural liquidity, so we do not need to set limits on new investments," Li Ka-shing said. CK ASSET is very patient, never having to win trades, with a focus on profit returns and investment costs. "With our overseas investments, when opportunities arise, CK ASSET has the ability to reallocate overseas funds to invest in Hong Kong or the mainland."

Regarding the Hong Kong market, Li Ka-shing said he does not have a "crystal ball" to predict the overall market. "Hong Kong has experienced many economic cycles over the past few decades, and the ones who made the most money each time were those who bought when others were bearish. My experience tells me that when the Hong Kong market turns around, changes happen very quickly, with little time to react. I dare not bet that the Hong Kong market is too bad, history tells us that anyone who bets on Hong Kong being bad in the long run is wrong."

Price reductions affect profits, will still bid for Hong Kong projects

Due to the unconfirmed revenue from the Blue Coast residential project in Wong Chuk Hang, which sold well in the first half of the year, and the soft real estate markets in Hong Kong and the mainland, CK ASSET's property sales revenue and income both saw significant declines during the reporting period.

CK ASSET's 2024 interim report shows that the confirmed property sales revenue for the first half of this year was HKD 4.635 billion, a 43.79% decrease from HKD 8.246 billion in the same period last year. The revenue mainly came from projects such as LYOS in Hung Hom, Tuen Mun's The Sail at Victoria Phase 1, and Dongguan's Sea Horizon Court.

As the aforementioned projects had significant price reductions for promotions, the profit contribution from property sales business also suffered significant losses. In the first half of this year, CK ASSET's property sales achieved revenue of HKD 1.821 billion, nearly halving from HKD 3.53 billion in the same period last year.

"Due to the continued weak economic environment and property market sentiment in Hong Kong and the mainland, property sales revenue and income for the first half of the year decreased compared to the same period last year," CK ASSET pointed out in the interim report At the end of February this year, the Hong Kong government completely withdrew the cooling measures, and the Hong Kong real estate market transaction volume has shown signs of recovery. CK ASSET seized the opportunity and actively launched new projects.

CK ASSET disclosed data showing that since its launch in April this year, Blue Coast has achieved sales of HKD 10.8 billion. In addition, the Singapore Perfect Ten project has been sold out, and the sales of the Yau Tong Proximity Station and Tuen Mun Feiyang projects are progressing smoothly. As of the end of June this year, CK ASSET has signed contracts for property sales revenue of HKD 28.44 billion that have not yet been confirmed, and revenue of HKD 5.407 billion to be confirmed within the year.

Based on profit margins of 40.1% in Hong Kong, 40.3% in mainland China, and 24.5% overseas, CK ASSET has already locked in profits exceeding HKD 2 billion. The completion of Blue Coast by the end of 2025 is expected to significantly increase the profit scale.

Regarding the pace of future project launches, Li Ka-shing said that the company has always adopted a "market-oriented strategy" to promote new projects, "I believe the sales team will come up with the right market-friendly strategies."

When asked about whether CK ASSET is still interested in bidding for more projects in Hong Kong, Li Ka-shing jokingly said, "Yes, it's a simple answer."

He further stated that profits are linked to market conditions, "When the market is weak, profits may decrease, but when the market begins to recover, the growth rate of profits may be faster than everyone's reaction. We are somewhat interested in new projects in Hong Kong, the key lies in the return on investment and costs."

"But then again, we don't have a must-win mentality, we are currently in a favorable position in our choices," Li Ka-shing said.

Capable of seizing opportunities in Hong Kong and mainland China

In recent years, CK ASSET has been increasing its presence in the UK market, with funds invested in the UK this year nearing HKD 7.5 billion, mainly in the energy sector.

In April this year, CK ASSET acquired Phoenix Energy for a total consideration of HKD 3.049 billion, which is a gas distribution network operator in Northern Ireland; in May, it acquired UU Solar for HKD 859 million - owning and operating a portfolio of renewable energy generation assets in the UK (including solar, wind, and hydro assets); in August, it acquired a portfolio of onshore wind assets in the UK for a total consideration of approximately HKD 3.56 billion.

CK ASSET's high-profile overseas acquisition completed last year has already yielded substantial returns.

In July 2023, CK ASSET acquired all the shares of Civitas Social Housing PLC for HKD 4.811 billion. This is a real estate investment trust fund listed on the main board of the London Stock Exchange, holding assets including supported housing and home care properties, with 697 properties and 4594 leases.

In the first half of this year, CK ASSET's property rental income reached HKD 3.118 billion, an increase of 8.94% year-on-year, achieving a profit of HKD 2.444 billion, a 5.53% increase year-on-year. Among them, the contribution of income from overseas markets was HKD 489 million, a 136% increase year-on-year "Our investment in social housing in the UK has enhanced the flexibility of our investment property portfolio, helping us better offset the challenges in the current Hong Kong market," said Li Ka-shing. CK Asset will continue to adopt a diversified, global strategy, seeking investment opportunities with double-digit returns and high structural liquidity to further enhance the quality of its balance sheet and earnings.

Overseas assets also provide CK Asset with ammunition to seize investment opportunities in Hong Kong and the mainland.

"We are pleased to achieve double-digit internal rates of return in overseas infrastructure businesses, with good structural liquidity. This means that when there are significant investment opportunities in Hong Kong or the mainland, we have the ability to raise overseas funds to invest back," Li Ka-shing stated