Core Viewpoint - Hong Kong property prices are experiencing a recovery, with optimistic market sentiment driving developers' stock prices up since the beginning of the year. However, the expected increase in property prices will be moderate due to cooling interest rate cut expectations and resilient mortgage rates [1] Group 1: Market Trends - New property sales have shown strong demand, with New World Development's Sierra Sea Phase 2A receiving over 49,000 applications, resulting in an oversubscription of more than 214 times [1] - The average price per square foot for this batch of units is approximately HKD 10,968, which is 5.5% and 3.1% higher than the prices of Phase 1A and 1B sold in April and May of last year, respectively. However, this increase is lower than the market's overall 6.8% rise during the same period [1] Group 2: Company Insights - The report mentions a potential acquisition of Rosewood Hotel Group by Marriott International, noting that Rosewood is a sister company of New World Development. Even if the transaction occurs, it is believed that Chow Tai Fook Enterprises will not use the proceeds to repay New World's debts [1] - The firm maintains a 5% growth forecast for Hong Kong property prices by 2026, with a preference for stocks such as Hysan Development and Link REIT, both rated as "outperform" [1]

Core Viewpoint - Hong Kong property prices are experiencing a recovery, with optimistic market sentiment driving developers' stock prices up since the beginning of the year. However, the expected increase in property prices will be moderate due to cooling interest rate cut expectations and resilient mortgage rates [1] Group 1: Market Trends - New property sales, such as the Sierra Sea Phase 2A by Sun Hung Kai Properties, received over 49,000 applications, with an oversubscription rate exceeding 214 times. The average price per square foot for this batch is approximately HKD 10,968, which is 5.5% and 3.1% higher than the previous phases sold in April and May last year, respectively [1] - The increase in property prices is lower than the market's overall increase of 6.8% during the same period and significantly below the 29% increase seen in the same company's "Tianxi Tian" Phase 2 [1] Group 2: Company Insights - There are rumors that Marriott International may acquire Rosewood Hotel Group, which is under Chow Tai Fook Enterprises. However, it is noted that even if the transaction occurs, Chow Tai Fook is unlikely to use the proceeds to repay debts owed to New World Development [1] - The company maintains a forecast of a 5% increase in Hong Kong property prices by 2026, with preferred stocks being Hysan Development (00014) and Link REIT (00823), both rated as "outperform" [1]

Financial Data and Key Metrics Changes - The group's underlying profit for the year ended June 30, 2025, was approximately HKD 21.9 billion, reflecting a year-on-year increase of 0.5% driven by high profits from trading and investment properties and lower finance costs, partially offset by impairment provisions of four development properties [3][4] - Reported profit increased by 1.2% year-on-year to HKD 19.3 billion, with underlying earnings per share up 0.5% to HKD 7.54 and reported earnings per share up 1.2% to HKD 6.65 [4][5] - The group's net debt as of June was HKD 93.3 billion, with a net gearing ratio improved to 15.1% from 17.8% in December [5][6] Business Segment Data and Key Metrics Changes - Property Development profit increased by 5.6% to approximately HKD 8.3 billion, mainly due to higher contributions from the Mainland [4] - Net rental income from the Property Rental segment decreased by 3.2% to around HKD 18.4 billion, attributed to a 3.5% drop in net rental income from the Hong Kong portfolio and a 3.2% decrease from the Mainland portfolio [4][14] - The hotel business recorded an operating profit of HKD 615 million, down from HKD 650 million in FY 2024 [5][26] Market Data and Key Metrics Changes - The group's total land bank in Hong Kong was about 57.4 million square feet, including 37.7 million square feet of completed properties and 19.7 million square feet under development [9] - Contracted sales in Hong Kong increased by 6% year-on-year to HKD 26 billion, with major contributors including Yoho West Phase 1 and Novo Land Phase 3B [11] - The Mainland's recognized property sales rose by 214% year-on-year to about HKD 8.4 billion, primarily due to higher sales volume of residential units [21] Company Strategy and Development Direction - The company aims to maintain a stable base of recurring income while leveraging its quality brand and products to drive sales [7][31] - Future projects include Kuala Lumpur Sky Mall and High Speed Rail West Kowloon Terminus development, with a focus on high asset turnover in property development [32][42] - The company plans to adopt a proactive leasing approach and strengthen relationships with tenants to enhance competitive edge [31][43] Management Comments on Operating Environment and Future Outlook - The management noted that the global environment remains volatile, but monetary easing and a growing tourism industry in Hong Kong are expected to drive moderate economic growth [30] - The residential market in Hong Kong is showing signs of stabilization, with expectations of improved buyer confidence and transaction volumes [30][38] - The company remains confident in the long-term prospects of both the Mainland and Hong Kong markets, supported by proactive fiscal and monetary measures [46][47] Other Important Information - The group achieved a significant reduction in net finance costs by 24% year-on-year, driven by lower debt and borrowing costs [6] - The company has been recognized for its commitment to ESG, with an upgraded ESG rating to AA [27] Q&A Session Summary Question: Outlook for the Hong Kong residential market and pricing strategy - Management believes the residential market is nearing a bottom, with low interest rates and rising rents encouraging renters to become buyers [52] Question: Contract sales target for Hong Kong in FY 2026 - The target is set at RMB 30 billion, with several projects planned for launch [55] Question: Expectations for government policy support measures - Management anticipates potential relaxation of stamp duty, which could benefit the residential market [58] Question: Land banking appetite and preferences - The company is focused on acquiring residential land in prime locations while also considering commercial investments [59] Question: Prioritization between new investment, debt repayment, and shareholder returns - The company will focus on paying down debt while looking for the right opportunities for investment [64] Question: Dividend policy and share buyback considerations - The company maintains a policy of paying 50% of underlying profit as dividends and does not currently plan for share buybacks [65] Question: Interest cost adjustments and financing strategies - Interest costs have decreased from 4.4% to 3.7%, with a significant portion of debt at fixed rates [66] Question: Preleasing rates for Shanghai ITC and tenant replacement plans - The Shanghai ITC project is progressing well, with Tower A achieving around 80% occupancy [81]

Financial Data and Key Metrics Changes - The group's underlying profit for the year ended June 30, 2025, was approximately HKD 21.9 billion, reflecting a year-on-year increase of 0.5% driven by high profits from trading and investment properties, alongside lower finance costs, partially offset by impairment provisions of HKD 4 billion on development properties [2] - Reported profit increased by 1.2% year-on-year to HKD 19.3 billion [2] - Underlying earnings per share rose by 0.5% to HKD 7.54, while reported earnings per share increased by 1.2% to HKD 6.65 [3] - The net debt as of June was HKD 93.3 billion, with a net gearing ratio improved to 15.1% from 17.8% [4][5] - Interest coverage improved to around six times compared to 4.6 times a year ago, with net finance costs dropping by 24% year-on-year [5] Business Segment Data and Key Metrics Changes - Property Development profit increased by 5.6% to approximately HKD 8.3 billion, mainly due to higher contributions from the Mainland [3] - Net rental income from the Property Rental segment decreased by 3.2% to around HKD 18.4 billion, attributed to a 3.5% drop in net rental income from the Hong Kong portfolio [3] - The hotel business recorded an operating profit of HKD 615 million, unchanged from FY 2024 [4] - The Group's total operating profit for FY 2025 was slightly down to about HKD 32.2 billion [4] Market Data and Key Metrics Changes - The Group's total land bank in Hong Kong was about 57.4 million square feet, with 37.7 million square feet completed and 19.7 million square feet under development [7] - Recognized property sales in Hong Kong increased by 6% year-on-year to HKD 26 billion, with major contributors including Yoho West Phase 1 and Novo Land Phase 3B [9] - Contracted sales not yet recognized amounted to HKD 35.6 billion, with around HKD 30.1 billion expected to be recognized in FY 2026 [11] - The Mainland's recognized property sales rose by 214% year-on-year to about HKD 8.4 billion, primarily due to higher sales volume of residential units [20] Company Strategy and Development Direction - The Group aims to maintain a stable base of recurring income and leverage its quality brand and products to drive sales [6] - The strategy includes a proactive leasing approach to strengthen competitive edge and cultivate long-term relationships with tenants [30] - New projects in Hong Kong include Kuala Lumpur Sky Mall and High Speed Rail West Kowloon Terminus development, while in Shanghai, three ITC projects are under development [31][44] Management's Comments on Operating Environment and Future Outlook - The global economic environment is expected to remain volatile, but monetary easing and lower interest rates may favor economic growth [29] - In Hong Kong, the residential market shows signs of stabilization, with rising home rents and improved buyer confidence anticipated [29] - The Mainland economy is expected to maintain steady growth supported by proactive fiscal and monetary measures [29] - The Group remains confident in the long-term prospects of both the Mainland and Hong Kong markets [44] Other Important Information - The Group's ESG initiatives have been recognized, with an upgrade to AA in the MSGI ESG rating [27] - The Group has introduced innovative retail formats and family-friendly facilities in its malls to enhance shopper experience [15][16] Q&A Session Summary Question: Outlook for the Hong Kong residential market and pricing strategy - Management believes the market is nearing a bottom due to low interest rates and rising rents, which may lead renters to become buyers [50] - Upcoming launches may see more aggressive pricing, especially for projects like Koolen and Sky [52] Question: Contract sales target for Hong Kong in FY 2026 - The target is set at HKD 30 billion, influenced by potential uncertainties in project approvals [54] Question: Expectations for government policy support - Management anticipates potential relaxation of stamp duty, which could benefit the residential market [56] Question: Land banking appetite and focus - The Group is interested in acquiring residential land, particularly in prime locations, while also considering commercial investments [57] Question: Prioritization between new investments, debt repayment, and shareholder returns - The focus is currently on paying down debt and improving liquidity, with land acquisition prioritized when opportunities arise [62] Question: Dividend policy and share buyback considerations - The Group maintains a policy of paying 50% of underlying profit as dividends and does not plan to initiate share buybacks at this time [63] Question: Interest cost adjustments and financing strategies - Interest costs have decreased from 4.4% to 3.7%, with a significant portion of debt at fixed rates [63] Question: Preleasing rates for Shanghai ITC and tenant replacement plans - The Shanghai ITC project is progressing well, with Tower A achieving around 80% occupancy, and management is in talks with potential new tenants for vacant spaces [80][81]

Summary of the Conference Call Industry Overview - **Industry**: Real Estate in Mainland China and Hong Kong - **Key Focus**: Property sales trends, market indicators, and investment opportunities Mainland China Insights - **Sales Performance**: - 60-city primary sales registrations down 18% year-over-year (Y/Y) but showed a 17% week-over-week (W/W) increase due to month-end effects [4][6] - Compared to the 4-year average, sales improved from -71% to -60%, still weaker than the average decline of 45-55% in Q1 2025 [4][6] - **Leading Indicators**: - Centaline tier-1 cities' secondary asking price index slightly improved from 21.3 to 21.9, remaining near a 6-month low [4][6] - Centaline manager confidence index dropped from 51.0 to 50.6 [4][6] - Property agency web traffic index decreased by 26% Y/Y and 3% W/W [4][6] - **Market Sentiment**: - The sector experienced a 3% drop last week, underperforming the Hang Seng Index (HSI) which rose by 3% [4][6] - Suggested strategy: "the worse, the better," indicating potential tactical opportunities [4][6] Hong Kong Market Update - **Sales Performance**: - The first batch of Sierra Sea (318 units) sold out completely at launch, attributed to low lump sum and attractive pricing [4][6] - Secondary transactions in top 35 estates rose by 4% W/W [4][6] - Secondary home prices increased marginally by 0.01% W/W [4][6] - **Market Trends**: - HK Property rose by 4% last week, slightly outperforming the HSI [4][6] - Outperformers included Champion REIT and HK Land, both up 14% due to strategic disposals and buyback programs [4][6] - Caution advised on NWD and Wharf REIC, while preference is given to high dividend certainty names like Swire Prop and Link REIT [4][6] Investment Recommendations - **Buy on Dips**: - Focus on quality state-owned enterprises (SOEs) such as CR Land and CR Mixc, and companies with turnaround stories like Longfor and Jinmao [4][6] - **Price Adjustments**: - Expectation of a 5% correction in home prices in 2025 due to anticipated market weaknesses [4][6] Additional Insights - **Sales Data**: - Detailed sales data by tier and region indicates varying performance across different city tiers, with tier-1 cities showing more resilience compared to tier-3/4 cities [4][6] - **Future Launches**: - Upcoming projects and their expected sell-through rates are critical for gauging market recovery and investor sentiment [4][6] This summary encapsulates the key points from the conference call, highlighting the current state of the real estate market in Mainland China and Hong Kong, along with strategic investment insights.