CTF Services Ltd (NWSGY) Q2 2026 Earnings Call Transcript

Good afternoon, everyone. Thank you for joining CDF Services Limited, Financial Year 2026 Interim Results Analyst Briefing. I'm Sylvia, the Head of Group Investor Relations. Today, our management will go through the financial and operational results for the period, giving you an update on our five key business segments, and also have further elaboration on our strategic initiative. There will be a QA session follow the presentation. For those joining us through the webcast, you may click on the question mark on the left-hand side of your screen and then submit the question any time. Our management can receive the question on the iPad. Without further ado, may I now invite Executive Director, Group Co-CEO, Mr. Gilbert Hull, Executive Director, Group COFO, Mr. Jim Lamb, to kick-start the meeting.

Thank you, Sylvia. I first will give a brief introduction on our results, and then I will pass on to Jim to give the financial updates as well as some updates on our business operations. So first of all, on the first half of our results, I'll give some highlights. Overall, we have delivered a solid earnings with steady growth, mainly on the financial services segment. We deliver a very strong growth that later on I will go through the numbers. It remains as a core-earning driver for our company. We continue on our portfolio optimisation by streamlining our senior access to strengthen the financial flexibility and support growth initiatives in our financial segment as well as our logistics segments. Throughout the period, we have successfully restored our public flow to over 25% via the CB issuance and also the subsequent conversions, which enhance the market liquidity of our With the effects on the 9th of March, our re-inclusion into the Hensink Composite Index will make us eligible to go to the Stock Connect and will further enhance the company's investor outreach. On the portfolio optimizations, we have done a number of acquisitions. First of all, we have completed the acquisitions of 13% in USMART in November 2025. USMART is a leading technology-driven financial service provider. We also announced acquisitions of 65% in Blackhorn Group, which is an external asset manager. the acquisition is still pending the approval from the relevant regulators. These two acquisitions, which are profitable on its own, will expand the entire financial services platform beyond insurance, which gives our customers a more full-script financial offerings and will target on high net worth individuals to give them more products that that they can actually choose from our platform. On the logistics side, we have completed two acquisitions. The first one is in December 2025, we acquired a logistic property in Dongguan. Second, we have completed three logistic properties in Shanghai, Ningbo and Changzhou in January 2026. All of these properties are completed logistic properties which will start to contribute AOP immediately. With all these acquisitions, we expand our logistic portfolio to 12 logistic properties with the total GLA to around 14.5 million square feet, strengthening the entire growth's presence in key economic regions in China's mainland as well as Hong Kong. At the same time, we also divest some of our investment, most notably is our insurance of exchangeable bond in Chouchang Holdings of $2.2 billion, 0.75 exchangeable bond, till 2028. We also dispose of various investments in our strategic investment segments worth over $300 million. Our investment fees continue to be a diversified business to drive strong cash flow as well as enhance the long-term shareholders' return with a number of initiatives. Firstly, it's disciplined capital stewardship to pursue growth in strong fundamentals cash flow businesses. Second is about the financial flexibility to navigate market uncertainties. and we will continue to do portfolio optimizations in terms of divestment as well as investments. We will continue to expand in our financial as well as our logistics segments to strengthen earning growth as well as recurring income and cash flow durations. With a consistent dividend track record, we will uphold our sustainable and progressive dividend policies. In terms of numbers, here is the AOP for the last six months. As you can see, our road segments has increased 1% in terms of AOP. Financial services segments increased 19%. Logistics segments has a decrease of 14%. Constructions decreased 21%. Facility management, which include HKCEC, Cadas Plus Park, as well as Glen Egos Hospitals, increased 360%. Last but not least is our strategic investment segments, increased 78%. On the business strategies as well as our outlook, for the road segments, we will continue to drive operational agility to manage changing traffic patterns. As I said in the last analyst presentations, we are not pursuing new projects so we will continue to optimize our existing portfolio as well as to look for enhancement of our earning portfolio within the role segments. For the financial services we will continue to capture demands from the Chinese mainland visitors as well as other overseas markets to capture the cross-border wealth flows. For the For logistics segments, we will continue to pursue acquisitions in stable assets in GBA, the Yangtze River Delta, as well as major metropolitan areas in Western China. For constructions, we definitely will leverage on the Hong Kong government initiatives in the northern metropolis. We will definitely benefit on the continued warming of the property market in Hong Kong. On the facility management segments, HACEC will continue to attract high-value market events. GHK, you will see later on in Jim's presentations, which turned from an AOL in the previous year to an AOP, will continue its expansions in the clinics as well as its growth in the hospitals. KTSP, needless to say, will capture on the initiatives from the governments of Hong Kong being the events capital of Asia and continue the operational warm-up and the development of the strategic partnerships with various segments. I'll pass it on to Jim on the financial updates.

Thank you, QBIT. On our first half, fiscal 2026 financial results, AOP was up 3% to $2.3 billion, just the EBITDA was up 1% to $3.6 billion, net profit was up 15% to $1.3 billion. The stronger growth in net profit than AOP was mainly due to the high exceptional loss in relation to the heather disposal last year. The board announced an interim ordinary dividend of $0.28 per share, which was up 3% year-on-year compared with the last period on a comparable basis. The total available liquidity of the group was $31 billion as of 31st of December 2025, which comprised of cash on hand of close to $21 billion and committed undrawn banking facility of close to $10 billion. The lead debt balance was $13.8 billion, which translates into a lagoon ratio of 34% and lead debt to adjust the EBITDA of 1.9 times. It is worth noting that the lead debt balance of $13.8 billion excrued the exchangeable bond that we issued in September, E-2025. And this exchangeable bond is now treated as financial liability at fair value through P&L, but we're actually quite hopeful that the EB will eventually be exchanged into Soltan shares before its maturity. As of 31st of December 2025, our renminbi debt to total debt ratio stood at 61% and renminbi liability to renminbi asset ratio stood at 76%. Since the risk of renminbi depreciation against Hong Kong dollar, U.S. law is now considered load compared with three years ago, we have been reducing our exposure to renminbi borrowing since the beginning of this year. And we target to lower the renminbi debt to total debt ratio to about 40% to 50% by June this year, and to lower the renminbi liability to renminbi asset ratio to about 50% to 60% by June this year. Fixed rate debt to total debt was 76%. We've been seeing a consistent decline in our average borrowing cost since fiscal 2024. And we further reduce our average borrowing cost from 4.2% a year ago to 4% in the current We project the average borrowing cost for a full year fiscal 2026 to be similar to first half fiscal in 2026 as hybrid was abnormally low in July to August 2025 which was below 1%. As the 31st of December 2025 we have totaled that of close to $35 billion of which about 19% or $6.8 billion will foredo within the next 12 months. If you compare this figure to the 9.4 billion of short-term debt as a 30 of June 2025. We managed to reduce our short-term debt that will mature within one year to, sorry, by 28%. We have diversified funding channels which include onshore and offshore banking facilities, US dollar bonds, offshore US dollar bonds, onshore panel bonds and also offshore convertible bonds. We maintained APRES offshore credit rating with JCR and an onshore AAA credit rating with China. Just a quick recap on the EB that we issued in September last year. The issue size is $2.2 billion, and we issued the bond at 3% premium to the principal value. So the total proceeds we received is $2.3 billion. Coupon is 0.75%, 10 is three years. It's exchangeable into shares of our Socheng stake, which comprise of about 10% of the issue capital of Socheng. Initial exchange price is $2.66. If we manage to, well, if the exchangeable bond is fully exchanged into Socheng shares, we'll be able to book a disposal gain of 1.2 billion Hong Kong dollar. This chart shows the movement of a lag-gearing ratio since fiscal 2019. The lag-gearing ratio increased from 0% to 31% in fiscal 2020 after the acquisition of CDF Life Insurance for almost $22 billion. Since then, it has been on a steady declining trend, down to 8% in fiscal 2023 thanks to the strong cash flow generation and the long-core disposal process, despite a series of acquisitions that we make during these years. In fiscal year 2024, we announced a sizable special dividend, the aim of which is to optimize the capital structure and to boost our ROE. The lagering ratio increased to 35% as a result. Since then, it has been maintained at around the same level, and our target lagging ratio remains unchanged at 40% to 45% in the near to medium term. Over the past several years, despite the challenging market condition, we've been able to consistently grow our AOP, led profit, as well as ROE. We have been committed to a sustainable and progressive dividend policy since fiscal 2019. the first year that we adopted this dividend policy since then we've been gradually increasing our dividend per share from 58 cents in fiscal 2019 to 65 cents in fiscal 2025 as you know we completed one for ten bonus issue in December 2025 as such you know all the per share data will need to be adjusted retrospectively to account for the enlarged share capital because of the bonus issue. The 30 cents interim DPS for fiscal 2025 therefore should be adjusted to 0.273 after the adjustment. So the interim DPS that we announced for fiscal 2025 represents a 3% increase year on year. We estimate the total interim ordinary dividend for the first half of fiscal year 2026 would amount to about $1.268 billion, which translates into a growth rate of 6%. Again, this demonstrates our commitment to the sustainable and progressive dividend policy. The reason why the total interim dividend growth is stronger than the DPS growth is mainly due to the increase in capital base because of the CB conversions. We are glad to report that, you know, a company will be included back into the Hang Seng Campus index effective from March 2026. As a result, we will be eligible to participate in the Stock Connect program pending final approval from the Shanghai and Shenzhen Stock Exchange. We believe this will further boost our stocks trading turnover by attracting a border-based investor from the Chinese mainland. It is also worth highlighting that our average daily trading volume has increased by 51 percent for full year 2025, and if you look at the more recent data, in January 2026, our average daily trading volume actually increased by almost 4.8 times compared with January 2025. Next I will briefly discuss the performance of each of our five segments during the current period. We have a total of 13 road projects with a total length of 880 km, spanning six provinces. During the period, the AOP of the road segment increased by 1% year-on-year to 771 million. The daily traffic flow and towed revenue for our road portfolio was down 1% year-on-year during the period because of the partial closure on two expressway currently undergoing expansion program. However, the AOP of the road segment actually increased by 1%, as I just mentioned, and that was driven mainly by the lower finance cost of the onshore project loads. For the financial services segment, the segment AOP increased strongly by 19% year-on-year to 729 million, and that was driven mainly by the increase in CDF Life CSM released, which is supported by the new business growth and also favorable financial market conditions. The CSM released grew by 17% year-on-year to 665 million, and the CSM balance also increased strongly by 18% from 30th of June 2025 to 10.8 billion Hong Kong dollar as at 31st of December 2025. So this increase is actually very significant. Investment income on its fixed income portfolio grew further to 4.7% as compared with 4.6% a year ago. We think this return figure is actually very high as compared with our peers in the Hong call market. The overall APE growth during the period increased by 48% year-on-year to 2.3 billion. VOMB increased by 39% year-on-year to 733 million. VOMB margin also recovered from 27% in the second half of fiscal 2025 to 32% in the current period. Embedded value, which is the most important variation benchmark for life insurers increased by 10% year-on-year to $27.8 billion. CDF Live maintain a minus rating with Fitch rating and a free credit rating with Moody's. The sovency ratio remained very high and 282% despite the strong APE growth a payment of the dividend to the list code, thanks to its strong asset and liability management efforts. The agency force of CDF Life performed exceptionally well during the period. The agency APE grew by 32% year on year to 612 million, driven mainly by the improvement in agency productivity, which was up 24% year on year. Agency persistency was up 13% year on year to well over 90%. The MDRT lumber also increased by 29% year-on-year. In order to diversify its reliance on the CMV business, CDF Light has been expanding its overseas business in order to create a new engine for growth. During the period, the overseas business APE increased by 86% year-on-year to 191 million, which is supported by a closer broker engagement and by leveraging on the broader CDF group ecosystem. It's now expanding its customer footprint in the South East Asian country and also among the high land-worth customers through its new Bermuda operations. Its investment portfolio is now close to HK$100 billion, HKD, of which about 68% is allocated to bond and 19% is allocated to equity investments. In terms of geographical distribution, the investment is actually very well diversified among Asia, North America, as well as Europe. The vast majority of the bond portfolio with investment graded bonds. Moving on to the logistics segment, which comprise of ATL Logistics Center with a gross leasable area of 5.9 million square feet, eight logistic properties in Chengdu, Wuhan, Dongguan, and Suzhou with a total gross leasable area of 6.9 million square feet, and also CUIRC with 13 large-scale well-contained terminals in the Chinese mainland. For ATL, the occupancy rate as of 30 of June 2025 was 80.7%, and as of the 31st of December 2026, it was 75.2%. The average rental rate increased by 3% year-on-year. In order to further improve its occupancy rate, the ATL has been diversifying its tenant-based, intensifying its marketing and branding efforts in order to attract new customers and also upgrading the amenities and facility in order to enhance the service quality. For the logistic properties in China's mainland, for the seven logistic properties in Chengdu, Wuhan, and Suzhou, it increased from 87.5% six months ago to 90.9% in December 2025. Occupancy of our logistic property also improved markedly to 75.7% from 40.7% in June 1925 after we terminate the lease with subtenant. In December, the group further acquired a logistic property in Dongguan, which marked its first expansion into the GB8 area. Overall, the average occupancy rate for the eight logistic property in Chengdu, Wuhan, Suzhou, and Dongguan stood at 91.2% in December 2025. Post the period end in January 2026, the group further completed the acquisition of three premium logistic properties in Shanghai, Lingbo, and Changzhou with a cap rate of 6% and total leasable area of 1.7 million square feet. The group will continue to export potential investment in the next generation of a digital infrastructure, i.e. in a data center. For CRRC, thanks to the strong demand for multimodal transportation services, its AOP increased by 19% year-on-year, throughput increased by 10%, and the TEU number reached 3.84 million. For the construction segment. The AOP was down 21% year-on-year to $310 million due mainly to the lower profit margin of the revenue recognized during the period and the absence of expected credit loss provision reversed in the prior period. The gross value of contract on hand was $65.4 billion. The backlog was $39.6 billion, and the newly awarded contract was 9.7 billion. The newly awarded contract represented a year-on-year growth of 115 percent, which demonstrated the strong reputation of CDFS construction group in the industry. In terms of the spread of our existing order, 67 percent of the contract came from government and institution, and 33 percent came from the private sector. CDFS Construction Group, as a quick recap, Hib Heng Group, which is a building construction project management company, Vibro, which is a foundation company, Chung Heng, which is one of the largest concrete producer in Hong Kong, and Sien-Chan Aster, which is a leading E&M specialist. Going forward, we believe there's early signs of recovery in the private residential market market, which should lead to a pickup in market activity in the next 12 to 24 months. While the government and institutional project remain the major growth driver in the near term, we are hopeful that there will be more project opportunity coming from the Loughlin metropolis, especially given the pilot tenders, which has just been launched by the Hong Kong government. With a strong reputation and proven technical capability, CFX Construction Group is well positioned to capture the emerging opportunities in the sector. Facility management, if we include the free duty, which was disposed of in December 2024, the segment AOP was up 360% year on year to 43 million. If we exclude the free-duty contribution, then the segment AOP was down 12% year-on-year. For GHK, it turned around from AOL in the last period to AOP in the current period. EBITDA grew by 11% year-on-year, and the number of inpatient, outpatient, as well as state cases all grew steadily by 1%, 2%, and 8% respectively. We have built an extensive network of clinics in order to feed the patients to GHK and also to divert the lower valued added services from GHK to such clinics. For the HKCC, the AOP declined due to increased depreciation and higher capital expenditure, as well as substituted F&B roughly because of the few events. The number of event fall fell slightly from 426 in the prior period to 378 in the current Total attendancy was down 4% year to 4.4 million. Kitas Sports Park recorded an AOL because it's still under the Rama face, but since its grand opening in March 225, KTSP has already became the flagship venue under the Sports Plus Mega Events initiative. During the six-month period ended December 2025, the Kitas Sports Park hosted 29 sports event as well as 11 entertainment events with a total of 7 million visitors and KDSP actually ranked third globally and third in Asia in terms of ticket sales for 2025 despite KDSP was only open in March while the other venue actually reported a full year of operation. For our Kaitek Mall within the KDSP, the occupancy rate was 90% in December 2025. I will pass on to Karen to talk about our ESG achievement during the period.

Thank you, thank you, Jim. For the ESG update, I would like to start with recognition we have received. They highlight the strength of our ESG strategy and dedication of our teams. We maintain strong rating across key benchmarks, such as Hansen Corporate Sustainability Index, the S&P Global ESG Assessment, and MSCI ESG Rating. And for the first time, we were honored with both the Distinction Award of the Hong Kong Sustainability Award and the ESG Excellence Award at the Hong Kong Corporate Governance and ESG Excellence Award 2025. This achievement validated our progress and showed the impact of our collective efforts across the group. Beyond recognition, we have also advanced our ESG strategy through greater integration and sustainability investment. CTF Live released its first voluntary ESG disclosure report at the business unit level, enhancing credibility and strengthening alignment with group-wide reporting practices. Importantly, this disclosure also prepares to align with Hong Kong roadmap on sustainability disclosure, help us stay ahead of evolving standards and provide more transparent information for our investor. We also acquired industrial logistic property in East China, of which achieved LEED's gold certificate, reinforcing our long-term sustainability ambitions under breakthrough 2050. Community engagement remains a cornerstone of our ESG journey. This year we were honored with Hong Kong Volunteer Award 2025 Outstanding Corporate Award, as well as Caring Company and Caregiver Friendly Company Accolades. This achievement reflects our sustained commitment to volunteerism and community care, while also underscoring our dedication to creating a supportive and inclusive working environment for our colleagues. Together, this recognition highlight the strength of our values and our ongoing effort to foster both social impact and workforce well-being. Looking ahead, we will continue to build on this momentum, strengthening disclosure practices, expanding coverage, investing further in sustainable asset and innovation, and forging meaningful partnership across our value chain to support a just and effective transition. In particular, we will deepen our focus on climate and nature, not only by enhancing transparency in our disclosure, but also embedding this priority into our operation. Our year's return is ongoing and this interim result reflects strong progress. More importantly, they demonstrate our shared commitment to shaping a resilient and sustainable business and operating model for the future.

Thank you. Thank you Karen, Jim and Gilbert. So now we are Moving to the QA session, please state your name and organization you work at before asking the question. And friendly reminder for those joining us through webcast, please click on the question icon and then you can key in your question as well. Zoe from HSBC.

Thank you for the opportunity. I have three questions. First, I would like to ask because I saw a company has multiple acquisition deals ongoing. I would like to know if there's any update, and if there's a timeline when the deal will be completed and these companies will be integrated. The second question is regarding the margin of the construction segment. I saw, as mentioned, the margin is lower this period, and I would like to ask for the second period margin and also for the newly awarded contract, the margin compared to the existing contracts. The third question is the guidance on CapEx if there is any update. Thank you.

Okay, I will take the first two and Jim can take the last one. On the acquisitions, I assume you're referring to the Blackhorn and the USMAD as well as the acquisitions of the logistic properties, right? All of them already completed, save and accept Blackhorn. For Blackhorn acquisitions, the 65% is still waiting for the approval from SFC. So pending that, there will be no further CEPs that we will complete after we get the approval from SFC. The second question is about the margin of the construction business. Yes, it's because of the competitions, obviously, and also the fewer projects in Hong Kong that the margin has been quite squeezed. I would say that the second half, I do not expect there will be further downtrend on the margin, but I won't expect a lot of the uptrend either on the margin for the construction business.

Sure. On capex, in the first half of fiscal year 2016, we spent about 1.5 billion on capex. The major investment was made with USMAR acquisition, the expansion of the two expressway, acquisition of the logistic property in GB8, and also we put down some deposit for the acquisition of the free logistic warehouses that were acquired in Yangtze River Delta. But on the other hand, we also received a disposal of over $500 million from the disposal of the long-core asset. Moving into the second half of this fiscal year, the committed CAPEX was about $850 million, which included mainly the acquisition of the free logistic warehouses in Yangtze River data which was already completed in January, and also the ongoing expansion project of the two expressway. Whether or not the actual CAPEX will be higher, the 850 million that would depend on the potential investment opportunities. On the other hand, we also think there will be over 800 million of disposal proceeds from the non-cored asset disposals.

Okay, thank you. We received a question online asking about ATL. So does management have any guidance on the outlook of the ATL regarding the occupancy and also the expected rental change? Thank you.

Okay. I think first of all, as you can see, the occupancy has dropped from 80% to 75%. We do expect that that will be stabilized. And we do see some new inquiries and new tenants coming to ATL, obviously due to the better environment, economic environment. We've seen some new retail tenants, I mean retail business tenants, as well as some e-commerce tenants inquiring and actually confirming some of the new leases, and I think the guidance will be that hopefully the occupancy rate will increase for the second half of this year.

Okay, thank you. Is there any question on the floor? I received another question online regarding dividend. So will there be any stock dividend in the second half?

And also, will the dividend per share go back to 65 cents like before sorry what was the second part okay 65 cents is the last time okay the first questions whether there will be any Spanish issues so so soon the question is asking I think we will look at it on a case-by-case basis. I think we'll decide closer to time in the final result in the coming September. So we don't have any guidance on that. There's no confirmation that there will definitely be a bonus issue, but we do hope that there will be more increase increase on the return to the shareholders. On the second question, I think, first of all, the 65% of 65 cents was based on the old number of shares. After the bonus issues last year, so the share base was enlarged. So I would say...

It became 59 cents.

It becomes 59 cents. so so so first of all it's not 65 cents is 59 cents so if I mean we as we always do we have been committed to the sustainable and progressive dividend policy and we always say that they the the meaning of a sustainable and progressive dividend policy is we will commit to the dividend payout and we will not lower the dividend after the decorations of the dividend. So we do hope, we do hope that we will continue to pay 59 cents.

It won't be 59 cents, yeah, at the very least.

At this time, if we use the comparable basis, the last interim dividend was 27 cents. So So we increased to $0.28 already. So hopefully it will be more than $0.59.

So to clarify, because there is another question related to the same topic. So our progressive and dividend policy means total amount instead of DPS. Is that the case? So is there any questions on the floor? Okay. So that concludes today's Anna's briefing. If you have any questions, feel free to reach out to the Group Investor Relations team. We are happy to assist any time. Have a good evening.

Thank you for all these people who joined today over HKEX and all the other big companies. It's very amazing that you guys choose us over all these other big companies.

Thank you.