Sun Hung Kai & Co Ltd

Good afternoon ladies and gentlemen and welcome to Soon Hoon Kai & Co 2026 interim results presentation. This presentation will be conducted in English. I am Christian Arnell from Christiansen Advisory. The senior executives here with me on the call today are Mr. Tony Edwards, Deputy Chief Executive Officer, and Mr. Brendan McGraw, Group Chief Financial Officer. In today's call, we will talk you through the company's business performance in the first half of 2026 outlook and Future Plans. Following the call, we'll open the floor to questions. Before we start, I would like to take the opportunity to remind you that today's discussion will contain forward-looking statements which are based on assumptions and factors that are beyond the control of the group and are not necessarily indicative or guarantees of the group's future performance. Now, I'd like to pass the call to Tony to begin the presentation. Tony, please go ahead.

Thank you very much. Good afternoon everyone and thank you for joining us today. Let me begin with the key figures. Despite the challenging operating environment in the first half of 2026, the group continues to create value, staying focused on downside protection and risk-adjusted returns. Total income decreased 10.9% year-on-year to HK$2.5 billion, while EBIT declined 9.3% to HK$1.3 billion. Attributable profit was HK$688 million, down 22.4% year-on-year, primarily driven by lower net investment income against the high baseline in the first half of 2025 from a major position's IPO valuation mark-up, partially offset by an improved contribution from our credit business. On the growth side, our alternative solutions business, SHK Capital Partners, continued to expand, with total AOM rising 17.7% since the end of 2025 to US$3.7 billion. Investment assets increased 7.4% since the end of 2025 to HK$16.9 billion while the consumer finance loan book grew steadily with gross loan balance up 4.6% since the end of 2025 to HK$12.3 billion. The board declared an interim dividend of $0.13 per share, an increase of 8.3% year-on-year.

Turning to our key messages.

The group's profitability remained resilient and aligned with our alternative investment platform strategy, although reported profit was lower this period, reflecting the absence of a sizable liquidity event compared with the preceding period. Total AUM reached 3.7 billion US with 17.7% growth in the first half demonstrating the flywheel effect of our expansion in strategic partnerships enabling SHK Capital Partners to build long-term reoccurring revenues and enduring relationships. Our proven investment track record supported by a resilient balance sheet continues to drive external capital growth, strategic partnership expansion, consumer finance scaling and asset growth in mortgage servicing. We maintain the low cost to income ratio and an EBIT margin of around 50%, reflecting disciplined and well-managed operating model. Importantly, our investments in technology infrastructure, AI implementation and top tier talent are actively driving business traction. As the uncertain market environment is likely to persist, the secular investment case for alternatives remains compelling. Now I'll pass to Brendan to talk about the investment management business.

Thank you, Tony. In the first half of 2026, our investment management business delivered a profit before tax of HK$403 million, contributed evenly across private equity, special situations and structured credit, and hedge funds. Overall, our return on assets remained solid at 3.8% for the six-month period. Total investment assets reached HK$16.9 billion, an increase of 7.4%, with private equity external funds and direct or co-investments representing approximately 57% of the portfolio. We also increased our exposure to special situations and structured credit, now accounting for 11.2% of assets, providing downside protection while preserving upside optionality. Investment income of private equity was propelled by liquidity events including IPO and M&A, portfolio markups from new financing rounds in technology investments and ongoing distributions. The decrease in direct and co-investment returns was largely a high base effect because the first half of 2025 included a one-off IPO gain. Our fund of hedge fund strategy delivered strong returns outperforming market benchmarks. Gains from special situations and structured credit were driven by value appreciation in a US payments co-investment and some special situation funds, alongside steady income from the private credit portfolio, such as the Wentworth private credit platform that we invested in last year. The public portfolio recorded a small loss and a broader market volatility and sector rotation in the second quarter. Our portfolio remains well diversified, both by geography and sector. We monitor it using a total portfolio approach. Geographically, Asia, North America, Europe and Australia accounted for approximately 33%, 34%, 15% and 8% of investments respectively. By sector, exposure is well balanced across financials. TMT, Diversified, Consumer, Real Estate, supporting resilience across market cycles. Private equity remains the largest contributor to investment income in the first half of 2026, generating HK$128 million of profit before tax. Total assets increased 2.9% from the end of 2025 to HK$9.7 billion, or return on assets with 2.1% for the six-month period. Net IRR since inception was 15.8% and DPI improved to 0.87 times, reflecting ongoing realisations and liquidity events. The successful public listing of HK$1.7 billion of the private equity portfolio provides us with strong liquidity flexibility. I will now hand back to Tony to discuss alternative solutions.

Thank you Brendan. Our alternative solutions business, SHK Capital Partners, delivered strong growth momentum during the period. Despite a challenging fundraising backdrop, our total AUM increased by 17.7% from the end of 2025 to US$3.7 billion, while fee income rose 24.7% year-on-year to HK$21 million. The pre-tax loss narrowed significantly by 82% year-on-year to a nominal HK$1 million, This improvement was primarily driven by accelerating AUM and fee income growth, partially offset by planned operating expenses. During the period we leveraged strategic partnerships with leading global alternative and private market GPs and this has allowed us to access privileged risk return through co-investments and tailored solutions for our institutional and family office clients. New developments include partnering with Janus Henderson to co-develop and distribute alternative investment solutions, partnering with Aquilus to unlock unique access to Asia Pacific secondaries, and expanding our alliance with Pine Grove Credit Partners, broadening Asian investor access to venture debt in a high-growth debt sector. Over the past few years, SHK Capital Partners has delivered strong and consistent growth with both AUM and fee income expanding at a high caliber, demonstrating the scalability of our platform and solutions-driven business model. Our AUM growth was attributable to net capital inflows, satisfactory performance across various strategies, and new strategic partnerships. Both the AUM and fee income growth reflects our success at accessing unique alternative opportunities with differentiated risk-adjusted returns, which further transforms into solutions for our clients and GP partners. With the completion of our investment in Aquilis in the second quarter and with most other alliances only commencing last year or this year, this collaborative model will continue to generate a flywheel effect that unlocks proprietary deal flow, expands the network effects and enables Sung Kai Capital Partners to build long-term reoccurring revenue. Importantly, these expanding partnerships benefit not only SSK Capital Partners but also the wider group, driving investment returns and creating compelling co-investment opportunities for our investment management segment. This next slide shows you how we activate our strategic partnerships to unlock the flywheel effects. At its heart, strategic partnerships and disciplined origination compound into investment returns and reoccurring income growth, a self-reinforcing flywheel that powers everything we do. On the supply side, we back the best GPs and funds with capital, better governance and distribution, helping strong managers build and scale. While we institutionalise and amplify what they do, these GPs and funds in turn produce differentiated Privileged risk-adjusted returns which we transform into solutions for our clients. On the demand side sit the family offices and institutional investors who gain access to investment opportunities they could not reach on their own with better access, better alignment with SSK Capital and better outcomes. As capital flows through, we grow our LPs AUM, and franchise value and the whole wheel turns again, each rotation strengthening the next. Ultimately, this compounding cycle drives the platform monetization and relationship development in two forms. Investment returns captured in the investment management segment of which approximately $681 million of gains have been associated with AUM from our partners within the alternative solutions platform since 2021 and reoccurring income. Captured in SHK Capital Partners The more partnerships we add, the more powerful these flywheel effects become and it is exactly what we are seeing in our AUM, fee income growth and investment returns. Now I'll hand back to Brendan to walk you through the credit business model.

Thank you Tony. Our consumer finance business conducted by UE Finance delivered a strong performance. Recording a pre-tax profit of HK$565 million in the first half of 2026, up 50.7% year-over-year. Excluding the exchange loss of HK$42 million relating to the liquidation of certain Chinese mainland subsidiaries, the adjusted pre-tax contribution was HK$607 million on a 43.8% year-on-year increase. The total gross loan balance of UAF increased by 4.6% from the end of 2025 to HK$12.3 billion. Supported by disciplined underwriting and portfolio management, the return on loan of UAF reached 28.1% in the first half of 2026 while the loan charge-off ratio improved to 6.6% down 30 basis points from the end of 2025. In the first half of 2026, UAF Hong Kong delivered satisfactory growth in both profitability and transaction volume, maintaining a disciplined credit underwriting policy and robust credit scoring system while bringing down the loan charge-off rate. Total gross loans of UAF Hong Kong increased 3.4% from the end of 2025 to HK$10.1 billion. Our SIM credit card business has begun generating profit, with growth in card receivables, interest and fee-based income. With rising revenue yields and acquisition among younger demographics, overall performance remains satisfactory. UAF China continued to focus on its secured loan business with tight cost control. Total gross loans in China increased by 9.7% from the end of 2025 to HK$2.3 billion. Total income of the consumer finance business increased by 6% year over year to HK$1.7 billion in the first half of 2026. The cost to income ratio stood at 31% in the first half of 2026, broadly stable versus 30.6% in the first half of 2025 and around 90 basis points lower than the 31.9% recorded in the first half of 2024. This demonstrates the continued strength of our consumer finance platform and the effectiveness of our prudence credit approach. In the first half of 2026, our mortgage loan business conducted by Sun and Kai Credit recorded a pre-tax profit of HK$26 million, up 140.7% year over year. Growth was primarily driven by a significant reduction in impairment charges, with the net impairment losses ratio down by 160 basis points year over year, reflecting improved asset quality and prudent risk management. As such, the return on loans improved by 50 basis points year over year to 10.4% in the first half of 2026, demonstrating enhanced profitability and portfolio performance. The mortgage servicing business continued its momentum. Total mortgage loans serviced by Sun and Kai Credit reached HK$1.5 billion at the end of the first half of 2026, up 40.7% from the end of 2025, while loan servicing income increased 81.3% year-over-year to HK$3 million. This growth was driven by new mandates underscoring the market's recognition and trust in Sun and Kai Credit amongst institutional investors and reflecting growing demand across developers. Expanding the mortgage servicing business advances our strategy to broaden the revenue base through capital-light recurring income while solidifying our position as an institutionalised mortgage solutions platform. Now let me go through our key financial performance in the first half of 26. Attributable profit was HK$688 million, down 22.4% year-on-year. total income reached HK$2.5 billion, down 10.9% year-on-year. Both declines were mainly due to the absence of a sizeable liquidity event compared to the preceding period. Looking at the broader two-year trend, performance has strengthened since the 2024 interim. Attributable profit has grown from HK$75 million to HK$688 million, while total income is up 29.4% from HK$1.93 billion to HK$2.5 billion, underscoring the group's improved earnings base over the period, even against a strong 2025 comparative. The cost-to-income ratio of our fees and interest-based business stood at 31.8%, interest cover remained strong at 3.9 times, net debt decreased by 5.1% year-over-year to HK$6.2 billion, While shareholders' equity increased 3.4% year-over-year to HK$22.8 billion Consequently, our net gearing ratio reduced from 29.6% in the first half of 2025 to 27.1% in the first half of 2026 reinforcing the strength of our basis sheet Charts highlight our long-standing commitment to disciplined asset growth and value creation, which has consistently translated into strong EBIT and attractive shareholder returns. Our capital has been deployed with a clear focus on quality and sustainability, underpinned by a long-term proven track record of stable capital return across market cycles. Operationally, our EBIT margins stood at 50%, demonstrating our continued focus on profitability. The board declared an interim dividend of 13 cents per share for the first half of 26, an increase of 8.3% year-on-year. The group also repurchased 2.8 million shares in the first half of 2026. Since 1997, we have returned a total of HK$16.2 billion to shareholders through dividends and buybacks, while maintaining a strong and flexible balance sheet. Together, these elements underscore our focus on disciplined capital management, sustainable earnings and long-term shareholder value. Now I'll pass you back to Tony to talk about the outlook.

Thank you, Brendan. Let me close with our outlook. We expect the macro backdrop to remain dynamic, shaped by geopolitical shifts, interest rate trends and ongoing AI disruption. Rather than try to predict the cycle, We are positioning the group to stay resilient across market conditions guided by four pillars. Firstly, capital discipline. Disciplined capital allocation and proactive risk management remain central to maintaining resilience through market cycles. That discipline is reinforced by cross segment synergies Deeper collaboration across our credit, investment management and alternative solutions businesses is where we believe much of our differentiated value can be created. We're extending that value further through strategic partnerships. New GP investments and co-developed solutions will unlock further flywheel and network effects across our ecosystem, supporting investment returns, reoccurring income and proprietary opportunities. And underpinning all of this is agile execution. Our nimble operating model and group-wide AI integration enable SHK to capitalize decisively on high conviction, asymmetric market opportunities while progressively diversifying and expanding our revenue base. Together, these pillars are aimed at one clear outcome, sustainable earnings growth and long-term value creation for our shareholders. Thank you.

Thank you, Tony. That concludes management's prepared remarks, and we will now proceed to the Q&A session. If you'd like to ask a question, please submit your question to the Q&A box at the bottom of the panel. Please also clearly state your name and company together with the question. We'll pause for a moment to allow the questions to compile. The first question comes from Kate Luong at UOB Hong Kong. Could you provide more color on the latest partnership with Clipway and Aquilis? What are the opportunities that we expect to see from these partnerships?

I think maybe Tony, you could answer that one.

Thanks, Brendan. Yeah, both with Aquilus and Clipway, who are both secondaries managers, Clipway and Global, Aquilus more in Asia, their job is really to provide liquidity to other LPs or investors that are looking to sell some of their private equity or real estate fund positions. And with that, it gives us a significant insight into the market for secondaries and provides us with a lot of information in terms of the pricing of secondaries and also the valuations of the holdings within those secondary funds. and that makes us a lot smarter when it comes to determining our own and other investment opportunities as we can bring all that information and insight together within our organisation. Those investment opportunities are also very scarce and unique and those that have a significant have a significant edge and that's really what our clients are also interested in, access to those exclusive investments with an edge. That's what we call privileged risk return. Thank you.

We have a follow-up question from Kate. How do we see the investment management segment performing in the second half of the year and what strategies and priorities do you have amid the current market volatility?

I'll take that one. Yeah, I think the short answer to that is that we will maintain our strategy for investment management, which is really embedded in deep research, selective investments, and not just chasing return, but looking for downside protection as well. So this is why we've been able to maintain a strong net IRR of 15.8%. and that's the same strategy that we will maintain in the second half of the year. Obviously, don't have a crystal ball, can't tell you exactly how that will turn out in terms of performance, but you can see yourself over the cycle that that strategy does work.

Thank you, Brendan. The next question comes from Robert Lamb at TDG Investment. The period's lower profit largely reflected the absence of a sizable liquidity event compared with last year. As the platform scales towards more recurring fee-based income, how quickly do you expect the earnings mix to become less dependent on episodic realizations, and what proportion of income do you ultimately see coming from recurring sources?

Okay. Maybe I'll take that one first Tony and then you can add on if there's anything to add there. Yeah I mean I think this has been obviously a very conscious effort by the company to change the earnings mix over the last few years where we've been seeking to have this fee and interest based income more prominent even within our financial reporting and within how we structure our business. We do see that it is growing. It grew by almost 4% over the year. But obviously it will take time to scale as the EUM builds within the platform. So I don't think it will change extremely quickly, but it will change over time. And that is the direction of travel for the group.

Yeah. And if I could add to that question though, The realizations might be cyclical, but the actual process is very systematic in the investment team. And that's borne out with our IRR that we've published. It's a 15.8% over the last 15 or so years, which is a proof statement that the processes, the people, and the culture within the organization has the capability to invest in a systematic way and what we've done more recently is enhance that by actively investing and engaging with GPs to allow us to build on that access to better opportunities and share those opportunities with third parties and bring their capital to bear and allow us therefore to create better risk return for ourselves and our third party capital. And that's really the flywheel effect or the network effects that we're trying to take advantage of and I think you'll see that come through over the results over the next few years.

Thank you. As a reminder, if you'd like to ask a question, please type your question into the Q&A box at the bottom of the panel. The next question comes from Eudora from Deal Street Asia. Should you share more details into your new GP investment plans? Amid the current AI-centric market boom, what is your view on the 2026 vintage of primary fund investment opportunities?

Should I talk to that first, Brendan?

Yeah, you go ahead.

I think we are continuing to look to expand our GP partnerships. We have a number of GP partners in the pipeline. We have an opportunistic view on that as we're trying to find the right people in the right asset classes that we believe have the right qualities and the business is set up in a way that we'll be able to scale with our capital and with our assistance. And that assistance can be in various forms. We have been invested in that, specifically in the credit space. I think that's where we see the greatest opportunity over the course of the next few years. Maybe in Europe, maybe elsewhere. And I think that's where our client capital is also looking to diversify into those sorts of opportunities where The outcomes are much more known rather than variable and that's really what we're seeking is consistency and clarity and transparency in an investment world which has become more volatile so hence we don't typically chase the latest investment theme but create investment opportunities where we see that downside protection

where we have limited downside and the asymmetric exposure where things go very well we can participate in that growth as well Maybe I'll just add to that as well what we tend to do when we're looking at GPs we do look at the track records in quite a lot of depth and we do re-up with good GPs that have given us good returns over multiple vintages so that also provides Thank you.

We have a follow-up question from . Are you concerned at all about the tech AI-focused funds launching this year becoming another high-priced vintage where exits in five to six years down the road could be challenging?

Maybe I'll take that one. Yeah, I mean, there's always that risk. There's always that challenge when looking at private equity and these types of investments. I think the honest answer to that is that you need to have, you know, very deep research. You have to have discipline in the investment strategy and make sure that you are investing in different sectors, different geographies, different GPs and to have a more of a portfolio approach, not just to focus on the latest theme or the latest trend.

Yeah, I'd like to add to that because I think that's the key is not chasing the latest trend. Our heritage is as a credit investor. And so philosophically, price is really important to us. And that's a really big component in determining our investment appetite and the opportunity and also our risk control. So if you look at the recent investments in, say, Janus, for example, we're very attracted to Janus Henderson's strategy of implementing an AI solution across its business And we invested in Jameis in the high single digits multiples based on an AI thesis rather than investing in a lot of AI names with a very extremely high and extended multiple. So a lot more comfortable philosophically using price and valuation to justify investment opportunities rather than expectations of what might happen in the future.

Thank you. The next question comes from Alex Chan at Singtao. How is Beijing's tightening on cross-border capital flows impacting your credit business? Specifically, borrow repayment capacity, loan demand, and collateral recovery. Given these headwinds, do you anticipate higher bad debt provisions and tighter lending standards in the second half of the year?

Okay, I'll take this one. Yeah, we are aware of tightening on the cross-border capital flows. So far, the impact for our business in Hong Kong, we haven't seen any large impact from this. In fact, I think if you look at the financials, you can see that our impairment has dropped by about 20% over the period. So we're not experiencing any repayment issues because of this particular issue. and whether we anticipate any headwinds or higher tightening of late lending standards. We already have tight lending standards and we will continue to apply that model, which I think is why we've been able to control the charge off ratios in the past.

We have a follow up question from Alex. As borrowing costs stay elevated and price competition in unsecured lending heats up, How do you plan to defend your net interest margins without taking on riskier subprime borrowers? Looking into the next 6 to 12 months, where do you see the ceiling for your loan book growth if risk-weighted assets must be kept in check?

Okay, maybe I'll take that one as well. Yeah, I mean, obviously our net interest margin has been maintained, as we mentioned in the presentation. I think... The way in which we do that is not just by chasing after more clients, we also develop our products. So we've seen quite a good initiative within our UA Finance to develop new products, in particular the credit card, which gives us new forms of income as well. So that helps us to maintain a net interest margin as well. I don't see any particular limits in terms of a hard limit for the size of our loan book. Obviously we need to make sure that we keep it within levels that we are comfortable with from an overall balance sheet perspective but we wouldn't be setting any set limits.

As a reminder if you'd like to ask a question please type it into the panel at the bottom of your window. The next question is You've spoken about the flywheel effect underpinning your platform. Could you give some concrete examples of how this dynamic translates into platform monetization and tangible revenue? Okay.

I think, Tony, you'd be well-placed about that one.

Yes. Thanks, Brendan. If we use an example, I think, well, if you look at the flywheel effect in general, it is looking at activating the GPs that create a privileged risk return, so investment opportunities with an edge that are exclusive that we can wrap into solutions for our family office and insurance clients. There are many different ways where we can work together in partnership with GPs. A good example of that would have been recently with our credit platform and probably equity platform or real estate equity platform in Australia called Wentworth. We were looking to invest in some hotels in Darling Harbour and a couple of hotels in Sydney which we sourced from a Middle Eastern sovereign fund and together through our expertise and structuring and investment capabilities purchased those hotels at a very good valuation particularly relative to the opportunity we see in Sydney with the new airports opening and that has allowed our clients also to participate in that hotel acquisition and they provided more capital to Wentworth to invest in future investment ideas and that's the cycle the flywheel effect that I'm talking about and it's driven by essentially good investment ideas good underwriting capabilities access expertise and ultimately the proof statement is good investment risk returns and I think as we're achieving that that improves relationships with GPs that we activate with and therefore we get better opportunities and improved relationships with the LPs and ultimately those relationships will provide our success in the future.

Thank you, Tony. As a reminder, if you have any questions, please type them into the Q&A panel at the bottom of your screen. There appear to be no further questions. Thank you. Thank you.