Q2 2026 Kerry Properties Ltd Earnings Call
Speaker #1: We're welcome to those here joining us here at Kerry Center. And as well as those participating on the webcast. Today I'm pleased to be joined by Mr. Kwok Kun Hua, Chairman and Chief Executive Officer.
Speaker #1: And Ms. Suzanne Cheng, Chief Financial Officer. We'll begin with remarks for Mr. Kwok, followed by a presentation by Ms. Cheng, after that we'll open the floor for Q&A.
Speaker #1: I now invite Mr. Kwok to share his remarks on the group's performance for the first half, and I'll look going forward. Mr. Kwok, please.
Speaker #2: Thank you. good afternoon, everyone. Thank you for joining our 2026 interim results briefing. I'll begin with a quick overview of the market environment and our business performance.
Speaker #2: In Hong Kong, the resident— the residential market continued to improve in the first half. With the supply-demand balance turning positive, we are focused on building up our land bank, our premium and luxury projects, continue to attract discerning buyers, and we were pleased to secure 3 modestly sized residential sites.
Speaker #2: During the period, our rental apartments have achieved full occupancy, and our retail malls have registered double-digit, retail sales growth. However, our office leasing remains challenging.
Speaker #2: On the Chinese mainland, the residential market remains weak overall, with transactions and housing prices declining in the first half. Although able to July transactions particularly in the Tier 1 cities are showing year-over-year improvements.
Speaker #2: Our development property sales on the Chinese mainland has been significantly slower, than we had expected. for investment properties, our office occupancy levels were stable, although unit rents remain soft.
Speaker #2: Retail performed steadily, supported by ongoing tenant mix optimization, marketing initiatives, and our premium and active lifestyle positioning. Now, turning to the financial results, our profit after tax increased by 20% to $735 million.
Speaker #2: Our underlying profit was $782 million, down 9% year over year. This is mainly due to lower finance costs capitalization, after the pre-sales of our Shanghai Jinming residences.
Speaker #2: The board has declared an interim dividend of 40 cents per share, unchanged from last year. Now, looking ahead, we remain constructive on the longer-term outlook for both the Chinese mainland and Hong Kong, underpinned by favorable long-term fundamentals.
Speaker #2: However, the short and possibly medium term, in Hong Kong, uncertainty around interest rate trends tightened capital outflow controls on the mainland, and underlying continue to pose challenges.
Speaker #2: On the Chinese mainland, growth is concentrated around high-tech and new energy, as well as export-oriented sectors, while the property markets remain weak. Weighing on consumer and investor confidence.
Speaker #2: As always, we will prioritize the health and resiliency of the company, and strive to find the optimal dynamic balance between the various time frames and between investment and capital return.
Speaker #2: Related to that, we have recently decided to re-categorize our newly renovated mid-levels apartment, Branxham Crest, as a development property for sale. As part of our capital recycling strategy.
Speaker #2: And with that, I shall now hand over to Suzanne.
Speaker #1: Thank you, Hua. Contrary to sales for the first half of the year was 6.9 billion HKD, the decline reflected high comparison base of the pre-sale of our Shanghai Jinming residences in the first half of last year.
Speaker #1: BP revenue came in at HKD 3 billion, for the first half of 2026. The decline against the same period last year was largely due to the timing of the handing over of sold units.
Speaker #1: Gross profit margin improved from 9% to 18%, due to different product mix. Currently, we have 29.8 billion HKD in our net order book, which will be completed over in the coming 2 years.
Speaker #1: The Chinese mainland order book stands at 23.9 billion, and primarily consists of the Shanghai Jinming residences. Which were sold out in 2025, most of this is expected to be recognized over 2027 and 2028.
Speaker #1: In Hong Kong, the order book is 5.9 billion HKD, expected to be recognized in the second half of 2026 and 2027. Turning to our Chinese mainland IP portfolio, over-rental revenue declined by 5% in renminbi terms on like-for-like basis.
Speaker #1: Office market conditions remained challenging, office revenue declined by 5%, reflecting continued pressure on rent, although occupancy remained largely stable at 89%. We continued to perform favorably against the border market.
Speaker #1: Retail remained steady, revenue were broadly stable, tenant sales continued to grow, and occupancy remained decent at 91%. Our JV project, Prisma, in Shanghai Jinqiao, in Pudong, officially launched at the end of June.
Speaker #1: In Hong Kong, overall rental revenue decreased by 2% on like-for-like basis, office leasing remained challenging, with tenant clearly favoring a high-quality space in Central.
Speaker #1: Our office revenue was broadly stable and occupancy improved to 83%. In retail, Mega Boss achieved double-digit tenant sales growth, benefiting from the improvement in the Hong Kong residential market.
Speaker #1: Revenue was broadly stable, and occupancy remained healthy at 94%. The asset enhancement program was completed in June, introduced more variety in the mall. Our rental apartment continued to perform well, revenue increased by 8% on a like-for-like basis, supported by healthy demand from for premium and luxury rental properties, while overall occupancy was 99%.
Speaker #1: Now, let's move on to our financial updates. Revenue decreased by 33% to 6.7 billion HKD, mainly due to lower DP revenue recognized in Hong Kong.
Speaker #1: Underlying profit decreased by 9% to $782 million HKD, mainly due to a lower level of finance costs capitalization. This was partly offset by an absence of a DP provision during the period.
Speaker #1: Our deleveraging process remained on track. Net debt decreased by 1.9 billion HKD to HKD 37.8 billion. And the gearing ratio improved to 31.3%. Mainly driven by the continued receipt of the sales proceeds from the Shanghai Jinming residences.
Speaker #1: Including the site acquisition up to now, we are targeting a gearing ratio of around 30% by end of this year. Possibly higher if we are fortunate enough to acquire some new sites in Hong Kong.
Speaker #1: Our cash and bank deposit totaling 17.4 billion HKD. Together with the unjoined facility, our capital resources represent around 88% of our total borrowings. Gross finance costs declined by 19%, benefiting from the lower debt level and lower interest rate.
Speaker #1: However, as a smaller portion was capitalized, net finance costs increased. Our effective borrowing rate dropped from 4% in the first half of 2025, 3.8% in by the end of 2025, and now 3.5%.
Speaker #1: Our debt profile remained largely stable during the period, renminbi borrowing continued to account for around 50% of the total debt. Overall hedge borrowing account for 72% of the total borrowings, broadly was in line with last year.
