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Profit Attributable to Owners of the Company up 22% to HK$2,547.7 million; Basic EPS up 23% to HK128.3 cents
Financial Highlights
| For the year ended 31 Dec | ||
| 2020 | 2019 | Change |
Pre-tax Profit (HK$ million) | 3,200.6 | 2,743.4 | +17% |
Profit Attributable to Owners of the Company (HK$ million) | 2,547.7 | 2,085.2 | +22% |
Basic Earnings Per Share (HK Cents) | 128.3 | 104.4 | +23% |
Book Value Per Share (HK$) | 11.4 | 10.2 | +12% |
HONG KONG SAR - Media OutReach - 18 March 2021 - Sun Hung Kai & Co. Limited (Stock Code: 86.HK) ("SHK & Co." or the "Company", together with its subsidiaries, the "Group") announced a solid set of annual results for the year ended 31 December 2020. The year also marked a milestone in the Company's five-year transformation from a securities house to an alternative investment platform after the disposal of its stake in Everbright Sun Hung Kai Securities Limited in November 2020. This strategic move has accelerated the development of the Company's new Funds Management business.
Profit attributable to owners of the Company increased by 22% to HK$2,547.7 million (2019: HK$2,085.2 million); basic earnings per share ("EPS") increased by 23% to HK128.3 cents (2019: HK104.4 cents); book value per share increased by 12% to HK$11.4 (2019: HK$10.2).
The Board has declared a second interim dividend of HK14 cents per share for the year ended 31 December 2020, increasing the total dividend per share for 2020 to HK26 cents (2019: HK26 cents).
"Despite the challenges posed by COVID-19, the results for the year reflect commendable overall performance and strong earnings in the investment management business. Through this turbulent year, the Company remained highly liquid and profitable, adopting a strategy of cautiously reducing risk in the first half, and was well-positioned for investment opportunities which arose during the second half of the year." said Mr. Lee Seng Huang, the Group Executive Chairman.
Capitalising on the significant increase in the returns from the investment portfolio, the Group's pre-tax profit for the year increased by 17% to HK$3,200.6 million (2019: HK$2,743.4 million). Revenue in 2020 was HK$4,056.6 million (2019: HK$4,216.8 million), of which interest income was the biggest component.
Segment Performance
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* The comparative figures for Specialty Finance and Investment Management segments were re-presented to align with the changes to segment reporting adopted in the 2020 annual report.
Investment Management
The Investment Management division leverages the Group's expertise, network and strong financial position to seek attractive risk-adjusted investment returns. In 2020, the annual return on the average assets for the segment was 16.9%, compared to 11.9% in 2019. Taking into account operating expenses and funding cost allocations, the segment contributed HK$2,126.4 million to pre-tax profit, an increase of 65% from HK$1,290.8 million achieved in the previous year.
The development of the Group's investment management business commenced approximately five years ago. This alternative investment focused initiative has grown to over HK$14.6 billion in assets and has built out a well-diversified portfolio consisting of investments in Private Equity, Hedge Funds, Credit and direct market securities. In addition, this portfolio has generated consistent risk adjusted returns over the 5-year period.
The standout performer in 2020 was the Alternatives segment (includes hedge funds and private equity investments) with a 24.7% return, a significant increase over the prior year. The public equity and credit portfolios were impacted in the first half of the year but saw a considerable improvement in the second half. Diversification and high underlying asset quality meant overall valuations remained robust.
The Group continued to strengthen its investment and operating teams while upgrading systems and infrastructure for the launch of its Funds Management platform. During the year, the Group added new team members and further built out its analytical and investment framework across businesses with a focus on risk management and control. In preparation for the launch of East Point Asset Management, the Group wound down a significant portion of public market positions in the fourth quarter.
Funds Management
In 2019, the Group decided to build on the success of the Investment Management business to create an Alternatives Funds Management platform, with a focus on expanding our capabilities to manage external capital. This will add additional revenue streams, further diversify our products and strategies, as well as attract and retain key talents. The Funds Management platform leverages the existing investment management platform, corporate services and marketing capabilities of SHK & Co.
The Funds Management platform has committed and launched three partnerships to date. The first with East Point Asset Management and the launch of their first fund, an APAC Equity Long/Short Fund. This involved a transition of an internally managed strategy and team. The second was a partnership with E15VC to launch a global venture capital technology fund and third is a partnership with ActusRay Partners to launch a European discretionary probabilistic investing fund focused on Europe.
In 2021, the Company has a strong pipeline of partnerships and fund launches covering various strategies including Real Estate lending, Fund of Hedge Funds, Crypto, Equity Long/Short and Index Arbitrage.
Financing Business
Consumer Finance
The Group's Consumer Finance business is conducted via United Asia Finance Limited ("UAF"), offering unsecured loans to individual consumers and businesses in Hong Kong and Mainland China. Over the past three years, UAF ranked first amongst all money lenders in Hong Kong.
The pre-tax contribution to the Group amounted to HK$1,238.5 million, a decrease of 3% against 2019. Business volume improved in the second half of the year, though the average loan balance during the full year was lower, resulting in a drop in revenue by 5% to HK$3,331.0 million. Benefiting from interest rate reductions, finance costs were 9% lower during the year. Net impairment losses were lower by 4% as benefited from a more stable economy in the second half year compared to the first half.
Specialty Finance
The Group's Specialty Finance business provides tailored funding solutions to corporates, investment funds and high net worth individuals. Almost all loans are either secured by assets or guarantees by corporates or high net worth individuals. The net loan balance was HK$1,637.9 million as at 31 December 2020, representing a year-on-year decline of 8%. As some of our borrowers were adversely impacted by the consequences of COVID-19, for prudence, impairment provisions were increased. As a result, Specialty Finance recorded a segmental loss of HK$132.3 million in 2020. These provisions may be reversed should there be a strong recovery post COVID-19.
Mortgage Loans
The Group's Mortgage Loans business is operated by Sun Hung Kai Credit. It contributed a meaningful pre-tax profit of HK$112.7 million in its fifth full year of operations. Revenue increased by 3%, primarily driven by the higher yields. The gross loan balance was HK$3,061.1 million as at 31 December 2020, of which 94% was for first mortgage loans. The overall loan-to-valuation ratio of the portfolio was below 65% at the end of the year. Looking ahead, SHK Credit is entering the next phase of growth by developing more fee income through its origination and asset servicing platform.
Outlook
At the time we present this announcement, the world is still adapting to the new normal caused by the COVID-19 pandemic yet not truly recovering from it. We are proud to have had a solid 2020 against a challenging and uncertain economic backdrop. However, we remain cautious of COVID-19 and China-US relations and we remain alert to the potential downside risks of asset prices.
Looking ahead, the Group is optimistic about the prospects for its core lending businesses, confident about its investment businesses and excited about the development of its Funds Management platform. Besides, it is actively exploring collaboration and synergies between these businesses.
"The Group is committed to delivering strong risk adjusted returns over the long term with sound governance and risk controls through all market conditions. Against a backdrop of a disrupted work environment, we continue to develop our culture and systems to attract and retain top talent with a commitment to integrity, creativity and teamwork." Mr. Lee concluded.
About Sun Hung Kai & Co. Limited
Sun Hung Kai & Co. Limited (SEHK: 86) is a leader in alternative investing headquartered in Hong Kong. Since its establishment in 1969, the Group has owned and operated market-leading platforms in Financial Services. The Group invests across public markets, alternatives and real assets and has an established track record of generating long-term risk adjusted returns for its shareholders. Most recently, it has extended its strategy to incubate, accelerate and support emerging asset managers in the Asian region. It is also the major shareholder of leading Consumer Finance firm, United Asia Finance Limited. The Group currently holds about HK$44 billion in total assets as at 31 December 2020.
For more information about SHK & Co., please visit its corporate website www.shkco.com.
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