[For immediate release]
19 August 2020, Hong Kong
Sun Hung Kai & Co. Announces 2020 Interim Results
Profitable across Financing and Investing businesses through unprecedented market disruptions
Sun Hung Kai & Co. Limited (Stock Code: 86.HK) ("SHK & Co." or the "Company", together with its subsidiaries, the "Group") announced its interim results for the period ended 30 June 2020: profit attributable to owners of the Company for the period was HK$695.2 million (first half of 2019: HK$1,028.9 million), a decline of 32% year-on-year.
"The results for the first half of 2020 represent a solid performance, as global markets wrestle with unprecedented shocks and sharp increases in volatility from the novel coronavirus ("COVID-19" or "COVID") pandemic. Through this turbulent period, the Company remained liquid and profitable, adopted a strategy of thoughtfully reducing risk, and remains well-positioned for new business opportunities" said Mr. Lee Seng Huang, the Group Executive Chairman.
The Group delivered solid profits across Financing and Investing business segments, supported by its strong financial position, robust risk control and rich business heritage. Through this turbulent period, as markets have faced repeated interruption to business activities, extreme volatility and a global liquidity crunch, the Group carefully monitored the investment portfolio and reduced risk exposure across the lending businesses. Basic earnings per share were HK34.9 cents, down 32% year on year, while book value per share for the period increased by 6% year on year to HK$10.40. The Board has declared an interim dividend of HK12 cents per share, same as the first half of 2019.
"In the midst of these ongoing challenges and uncertainties, I am proud of how quickly our team at SHK & Co. continues to adapt, and to keep both safe and productive. I believe that our strong team and financial position coupled with our longer-term investment horizon puts us in a position to weather this storm and remain profitable." Mr. Lee concluded.
2020 Interim Results Summary
Summary of Segment Performance
The profit before tax by segment, before non-controlling interests, is as follows:
The Group's Consumer Finance business is conducted via United Asia Finance Limited ("UAF"), offering unsecured loans to individual consumers and small businesses in Hong Kong and Mainland China. UAF remained profitable during the period, contributing HK$520.0 million, down 20% from the same period in 2019.
During the period, UAF Hong Kong remained resilient and maintained its market-leading position. Though the business was disrupted by the delayed effect of Hong Kong social unrest and the COVID-19 pandemic, it remained profitable. In July 2020, UAF launched a revamped mobile app, "Yes UA", with more advanced features. Gross loan balance was reduced by 1.7% year on year and net impairment losses ratio increased 20 basis points to 5.0% as management continued their cautious approach to underwriting and loan management.
UAF China's business was heavily impacted by the outbreak in the first quarter, and although business activity has not returned to pre-COVID levels, the business performance gradually picked up in the second quarter: origination increased and delinquencies fell. During the period, UAF China strategically lowered its exposure by reducing the total loan balance, by moving more business online and closing two physical branches. Even with these prudent efforts, the net impairment losses ratio increased 6.0% to 20.5%. UAF China continued to adopt cautious approach to loan approvals and has been monitoring the situation closely, ready to adjust its strategy and business plans as necessary.
During the period the Group's Specialty Finance business significantly reduced its net loan balance, bringing it down to HK$1,255.9 million (47% year on year reduction), as loans matured and were not replaced. Taking a cautious approach to the remaining loan portfolio, additional net impairment losses of HK$63.9 million reduced profits to HK$28.8 million.
Sun Hung Kai Credit's revenue increased by 13%, driven by the year-on-year increase in the average loan yield on our portfolio. The net loan balance was HK$3,134.1 million as at 30 June 2020, down 13% from a year earlier. The credit quality of the loan book remained strong and no actual credit losses were incurred during the period. Management expects the Hong Kong property market may be impacted in the remainder of 2020, therefore we expect to continue our prudent lending approach.
The Investment Management division leverages the Group's internal expertise, external network and financial position to invest in attractive risk-adjusted investment opportunities including Public Markets, Alternatives and Real Assets. During the period, the six-month return on the average assets for the segment was 4.4%. Taking into account operating expense and funding cost allocation, the segment contributed HK$365.9 million to pre-tax profit, a decrease of 26% from the HK$494.7 million contributed in the first half of 2019.
Although COVID-19 roiled the markets, the Public Markets APAC long/short portfolio returned 3.5%. The credit strategy has rebounded strongly, down 0.1% through the first half of 2020, and has further strengthened after the end of the period. Our Alternatives portfolio had a strong six-month return on average asset value of 11.8% and received record-high distributions of HK$1,298.3 million during the period. Our Real Assets portfolio posted a -1.1% six-month return due to the drop of asset value in Hong Kong commercial properties.
The Company is preparing for the initial launch of our Fund Management platform this year, as we transition at least one internally-managed strategy and make seed investments into new teams and existing fund managers. Going forward, we expect Fund Management to be a new driver for sustainable growth in assets under management and revenue.
At the time we present this announcement the world is facing new waves of the COVID-19 pandemic. We are proud to have remained profitable in a period when many companies have not, however we expect the uncertain business environment and volatile investment conditions to remain.
We are confident in the UAF management's capability to weather these challenges and adapt to the changing market conditions. UAF Hong Kong remained resilient and profitable though the first half of 2020. The efforts to move more of the UAF China business online has mitigated the negative effects of COVID-19 and we expect to continue that effort and see positive results. While the mortgage loan business has maintained profitability, the longer-term effects of central bank policy and the pandemic on Hong Kong's real estate market are yet to be seen, therefore management will remain prudent in new loan underwriting and vigilant in monitoring loan servicing. Specialty Finance will maintain its cautious approach to new lending.
The Investment Management business felt the impact of the volatile market, however the diversified portfolio turned in solid profits. We expect to continue to deploy capital through the remainder of the year as opportunities arise. We are continuing with our plans to launch our Fund Management platform this year and believe this platform will add additional assets and revenue to the Group.
We believe the current financing and investing business model, plus our strong financial position, enables the Company to weather the current storm and take advantage of new opportunities. We will maintain our diversified funding sources and liquid assets to provide staying power and enable our business development. We are cognizant that, as we remain cautious in our lending and investment businesses, we are retaining additional liquidity on our balance sheet and that this affects the overall returns of the Group. Given the ongoing global economic uncertainties, we feel that this more conservative approach is prudent. The Group will continue our business model and aims to deliver strong performance over the long term with sound governance and risk controls.
About Sun Hung Kai & Co. Limited
Sun Hung Kai & Co. Limited (the "Company", together with its subsidiaries, the "Group") is a financing and investing firm headquartered in Hong Kong. Since its establishment in 1969, the Group has owned and operated market-leading businesses in financial services. Building on its rich heritage, experience and network, the Group aims to generate long-term capital growth for its shareholders through a diverse, yet complementary, financing and investment model. It is the major shareholder of leading consumer finance firm United Asia Finance Limited, and a substantial shareholder of Everbright Sun Hung Kai. Overall, the Group holds approximately HK$43 billion* in total assets.
For more information, please view our website at www.shkco.com.
*As at 30 June 2020
For enquiries, please contact:
Joseph Fuqua, Director of Investor Relations
+852 3748 2888
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