sun hung kai & co. ltd. 2020 annual results

Stock Code: 0086

SUN HUNG KAI & CO. LTD.2020 ANNUAL RESULTS

ENDURE. ADAPT. EXCELA Hong Kong-listed, innovative financing and alternative investment firm

Mar 2021

Important - DisclaimerThe material in this Presentation has been prepared by Sun Hung Kai & Co (“the Company”) and its affiliated companies(referred to as the “Group”).

By attending or viewing this Presentation you are agreeing to be bound by the terms and restrictions set out below. Youmust not re-distribute, reproduce, edit or publish this Presentation in whole or in part whether in Hong Kong or otherwisewithout prior consent of the Company.

This Presentation is not an offer or invitation to purchase, subscribe, sell or dispose of any interest or securities in theCompany or the Group.

It is not intended that this Presentation be an exhaustive analysis of the Group’s financial or trading position or prospects.This Presentation may not contain all the information which you may consider material. The information and the opinionscontained in this Presentation are provided as at the date of this Presentation and may change without notice to you.Under no circumstances is any Group member or any of their directors, officers, employees and representatives liable forany direct, indirect or consequential loss or damage, howsoever caused (including in negligence or otherwise), that you orany other party may sustain from any use of the information in this Presentation or otherwise in connection with thisPresentation. The Group’s past performance is not necessarily indicative of its future performance. This Presentation alsocontains certain forward-looking statements regarding the Group’s opinions of and expectation of the future. Thesestatements are neither necessarily indicative of the Group’s future performance nor are they guarantees of futureperformance. Forward looking statements, by their nature, are based on assumptions and factors that may be beyond thecontrol of the Group. As such, actual future performance and results may materially and adversely differ from thoseexpressed or implied in this Presentation. The Group assumes no obligation to update or correct any forward-lookingstatement. The Group has not adopted any forward-looking statements made by third parties and as such the Group willnot be responsible for third party statements.

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Presenters:

Mr. Robert Quinlivan (Group Chief Financial Officer)

Ms. Elsy Li (Group Treasurer and Head of Corporate Development)

Ms. Lindsay Wright (Chief Executive Officer, Funds Management)

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Agenda

• Our Journey of Transformation• Company Overview• Investment Highlights

• Financing• Investment Management• Funds Management

II. 2020 Annual Results

IV. Business Outlook & Future Plans

I. About Us

III. Business Review

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50 Years of Excellence in Financial Markets HK$44B total assets

Committed to generating long term capital growth for shareholders

01

• A Pioneer in the Brokerage and Wealth Management Industry

• Listed in Hong Kong in 1983

• Allied Properties acquired majority stake in 1996

1969 - 2006

02

• Consumer Finance market leader

• Entered China in 2007

• Leading independent Broker and Wealth Manager

2006 - 2015

03

• Strategic transformation into Investment Management since 2015

• Everbright Securities Company Limited acquired 70% of the Sun Hung Kai Financial business (with the business renamed as Everbright Sun Hung Kai)

• Developed Mortgage business

• Built Investment Management platform leveraging our strengths

2015 - 2020

04

• Sold remaining stake (30%) in Everbright Sun Hung Kai in 2020

• Strategically transformed and extended the Investment Management business into Funds Management Platform

From 2020

For the period ended 31 December 2020.Values rounded for simplicity of presentation. Numbers may not foot due to rounding.

Our Journey of Transformation

Transform from a leading retail brokerage and wealth management firm to a leading alternative investment firm

Financing

Consumer Finance

Mortgage Loans

Specialty Finance

Investment Management

Public Markets

Alternatives

Real Assets

Funds Management Three Partnerships

Launched To Date

Company Overview

6

Three Pillars of Our Core Business

Investment Highlights

7

Values rounded for simplicity of presentation. *For the period ended 31 December 2020, YoY comparisons

Resilient Financing business as a strong financial foundation

High profitability of the Investment Management business

Solid track record of delivering returns to shareholders

Funds Management acts as a catalyst for future growth

• Financing business recorded stable cash inflow to support Investment and Funds Management

• AR2020 pre-tax profit: HK$1,218.9m

• Investment Management has already grown to over HK$14.6B* in assets

• AR2020 pre-tax profit: HK$2,126.4m (up 65% y-o-y)

• The Group has returned HK$12.2B to shareholders through distributions and share buybacks over the past 15 years

• Plan to continue share buyback in 2021

• The platform has committed and launched three partnerships to date and have a strong pipeline of partnerships and fund launches for 2021

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2020 Annual Results

HK$2,547.7m

Attributable Profit

HK128.3c

Basic EPS

HK$11.4

BVPS

HK26c +HK$53m

share buyback

Full-year Dividend

2020 Annual Results Highlights

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Commendable overall performance despite challenges

posed by the COVID-19 pandemic

Increasein attributable profit, pre-

tax profit and BVPS

For the year ended 31 December 2020, YoY comparisonsValues rounded for simplicity of presentation. Numbers may not foot due to rounding.

Strong liquidity, well positioned for opportunities

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+22% +23% +12% Consistent

Track Record of Performance

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56.2

104.4

128.3

2018 2019 2020

9.5 10.2

11.4

2018 2019 2020

Basic EPS (HK cents)

BVPS(HK$)

ROE (%)

▲ Focus on sustainable growth

▲ Long track record of consistent dividends

▲ Consistent growth in enterprise value

▲ Continue to improve capital efficiency

▲ Disciplined risk management

From a leading retail brokerage and wealth management firm to a leading alternative investment firm

6.2%

10.6%

11.8%

2018 2019 2020

For the year ended 31 December 2020, YoY comparisons Values rounded for simplicity of presentation. Numbers may not foot due to rounding.

1,184

2,085

2,548

2018 2019 2020

Attributable Profit (HK$ ’m)

Net Gearing Ratio (%)

52.4% 54.1%

41.4%

2018 2019 2020

+23%y-o-y

+22%y-o-y

+1.2pty-o-y

+12%y-o-y

-12.7pty-o-y

Earnings Drivers and Segment Assets

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Segment Assets

ConsolidatedPre-tax Profit

17,937.0 1,238.5

3,153.0 (132.3)

3,117.4 112.7

14,603.4 2,126.4

5,272.4 (144.7)

44,083.2 3,200.6

Consumer Finance

Specialty Finance

MortgageLoans


Funds Management

Group Managementand Support

• Steady, resilient performance in a challenging year

• Consistent contributor to pre-tax profit

• Loss in 2020 because some of our borrowers were particularly adversely impacted by COVID-19, we prudently increased impairment provisions, which we believe may reverse as the economy recovers

• Delivered a stable performance and contributed meaningful profit

• Entering the next phase of growth by developing more fee income through its origination and asset servicing platform

• Took advantage of the market dislocation, realised an uplift in our investment portfolio

• Pre-tax profit increased a significant 65%

• Pre-tax loss relates to earnings drag for higher cash buffer and a decline in the fair value of financial assets held for liquidity purposes

Group Total

(HK$ million)

Values rounded for simplicity of presentation. For the period ended 31 December 2020

• Started in 2021 to build on success of Investment Management program• The platform has committed and launched three partnerships to date• Strong pipeline for new fund launches in 2021

Balance Sheet

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HK$11.4 BVPS (+12%)

Cash Reserves: HK$7.3 billion

Interest cover 5.0x (+10%)

HK$53 million share buyback completed during the year

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For the period ended 31 December 2020, YoY comparisonsNumbers in HK$m unless otherwise specifiedNote: Not all Term Loans are held by Specialty Finance

Strong cash position provides us with comfortable liquidity during volatile market conditions

7,257.9 8,096.6

10,563.7 8,517.5

3,013.7

22,625.2

1,712.7

3,327.1

15,662.1

1,516.8

3,288.4

2,584.7

Total Loans

15,290.1Consumer Finance

Loans

Term Loans

Mortgage Loans

Cash

Investment Assets

Goodwill, Intangibles

OthersNon controlling interest

Others

Shareholders Equity

Long term debt

Short term debt

Funded by Assets 44,083.2

(HK$ million)

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Capital Structure and FundingTotal Assets

Total Liabilities

Net Gearing Ratio

Interest Cover

Conservative Capital Structure and Funding

Strong Cash Position

Well Positioned for Opportunities+

HK$44B +3.6%

HK$18B -4.5%

41.4% from 54.1%

5.0x +10%

For the period ended 31 December 2020, YTD comparisonsValues rounded for simplicity of presentation. Numbers may not foot due to rounding.

Total Borrowings

Bank and Other Borrowings Notes and Paper

Funding Structure

HK$16,614m -1%

HK$8,467m +4% HK$8,147m -5%

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Business Review

FinancingConsumer Finance

Mortgage Loans

Specialty Finance

Consumer Finance - UAF

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Loan Book Breakdown^

China

27%

Hong Kong

73%For the year ended 31 December 2020, YoY comparisonsValues rounded for simplicity of presentation. Numbers may not foot due to rounding.

^as of gross loan balance as at 31 December 2020.

Business volume improved in 2H2020, though the average loan balance during the full year was lower resulting in a drop in full year revenue of 5%. Hence the pre-tax contribution decreased too, particularly in the Mainland China business segment for 2020.

Benefiting from interest rate reductions, finance costs were 9% lower during the year.

Impairment losses were lower by 4% as benefited from a more stable economy in 2H compared to 1H.

Revenue

HK$3,331.0m -5%Pre-tax Contribution

HK$1,238.5m -3%Cost to income

33.4% from 32.1%Net Impairment Losses

(HK$769.2m) from (HK$803.9m), -4%

Net Loan Balance

HK$10,563.7m +1%Gross Loan Balance

HK$11,318.0m +2%

2020 Results: -3% Pre-tax Profit

Financing Funds ManagementInvestment Management

UAF – Performance by Market

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Higher bad debt charges and lower business volume in the 1H was off-set by economic stabilisation and satisfactory improvement in 2H

Continued to develop Fintech offerings:• Revamped “Yes UA” mobile App with facial

recognition, which is first among money lenders in Hong Kong to adopt the latest technology to enable customers to complete Know-Your-Customer checking

• Drawdown in real time with “Faster Payment System”

>Hong Kong Mainland China

2020 2019 2020 2019

No. of Branches 48 48 26 30

Gross Loan Balance (HK$m) 8,318.0 8,576.2 3,000.0 2,545.1

Loan Originated (HK$m) 10,373.6 12,499.1 4,223.7 4,522.2

Loan Originated (by no.) 159,969 183,354 87,347 104,716Average Gross Balance per Loan (HK$) 60,736 60,174 39,293 31,937

Total Return on Loans1 30.5% 32.1% 27.0% 33.9%

Charge-off Ratio2 4.8% 4.9% 12.0% 13.2%

Net Impairment Losses Ratio3 5.3% 6.0% 11.7% 12.0%

Impairment Allowance Ratio4 6.4% 5.7% 7.4% 8.6%1 Interest income and fee / average gross loan balance2 Charge-off / average gross loan balance3 Net impairment losses / average gross loan balance4 Impairment allowance /gross loan balance at year end


Hong Kong

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Mainland China

Strengthened our cooperation with various third-party online platforms including China UnionPay and All In Pay to expand our customer base and ensure steady flow of business referrals

Enhanced credit scoring model with sophisticated anti-fraud loan application functions

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Provided tailored funding solutions to

corporates, investment funds

and high net worth individuals

Pre-tax Contribution/ Loss

(HK$132.3m)

Specialty Finance

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The segment’s loss in 2020 was mainly due to the prudent increase of impairment provisions caused mainly by the continuous adverse impact from the coronavirus in the hospitality sector

Gross Loan Balance^

HK$2,249.4m +7%

Net Impairment Losses

(HK$300.7m) +88%

For the year ended at 31 December 2020, YoY comparisonsValues rounded for simplicity of presentation. Numbers may not foot due to rounding.

71%

29%

Term Loan by Sector

Real Estate

Investment

51%

26%

11%

12%

Term Loan by

Geography

UK

Greater China

Global

Australia

2020 Recap

Portfolio Breakdown

Remain confident that the performance of the segment will rebound and market demand for business financing will increase

In addition to term loans, Specialty Finance also holds: • preference shares• ordinary shares and

warrants• our investment in

the LSS Joint Venture


Mortgage loans in Hong Kong with low LTV,

predominantly for first

mortgages

Mortgage Loans

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• Emphasis was placed on capital efficiency and the margins of the business

• Investment in infrastructure and people

Entering the next phase of growth by developing more fee income through its origination and asset servicing platform

Revenue

HK$303.5 m +3%Pre-tax Contribution

HK$112.7m -7%Cost to income

18.1% from 14.6%Net Impairment Losses

(HK$25.7m) from (HK$12m)

Sun Hung Kai Credit underwrote fewer lower margin loans through the 2H due to the opportunity cost of capital and credit risks in this segment


2020 RecapRevenue increased by 3%, primarily driven by higher yields

Gross Loan Balance^

HK$3,061.1m -16%

^ Before impairment allowance

<65% Loan to Valuation ratio

94% from First Mortgage Loan


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Business Review


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Investment ManagementPre-tax Profit Analysis 2020 2019

Represented Change

Realised gain on financial assets and interest income 1,754.8 270.8 548%

Dividends received 21.5 8.7 147%

Rental income 27.9 24.1 16%

Mark-to-market valuation 936.2 1,529.0 -39%Net impairment allowance reversal/(losses) on financial instruments 43.0 (48.6) N/ALoss from revaluation on investment properties (161.7) (42.0) 285%

Others 32.8 (39.9) N/ATotal Gains 2,654.5 1,702.1 56%Operating Costs1 (528.1) (411.3) 28%Pre-tax Contribution 2,126.4 1,290.8 65%

1 Net of cost of capital

HK$2,126.4 million of pre-tax profit, up 65% year on year

Segment Assets^HK$14,603.4 m

Public Markets

10%

Alternatives

72%

Real Assets

18%

(HK$ million)

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^For the year ended 31 December 2020, YoY comparisons

^Based on period-end value

Focused on the fundamentals of underlying investments and carefully monitored the pandemic’s impact on our public and private portfolios

Over the past several years, we have invested the Group’s expertise and capital to build a portfolio of private equity funds, direct investments and co-investments to generate returns and diversify our exposure by industry and geography

Values rounded for simplicity of presentation. Numbers may not foot due to rounding.


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Investment Assets and ReturnFinancing Investment Management

2020 Return Track Record

(HK$ Million)Year End

ValueAverage

Value GainAnnualReturn

2019Re-presented

2018Re-presented

Alternatives 10,479.2 10,347.6 2,553.7 24.7% 15.0% 9.0%

Public Markets 1,522.7 2,777.9 242.8 8.7% 15.0% -8.6%

Real Assets 2,601.5 2,552.7 (142.0) -5.6% -3.9% 9.8%

Total 14,603.4 15,678.2 2,654.5 16.9% 11.9% 4.9%

Funds Management

16.9% annual return compared to 11.9% in 2019. Total gains of HK$2,654.5m>

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Overall, the equity and credit portfolios were impacted in 1H but saw a considerable improvement in 2H

Part of our real estate portfolio was negatively affected particularly in hospitality assets. However, diversification and high underlying asset quality meant overall valuations remained robust

• In line with global credit markets, our credit portfolio was impacted negatively in the 1H, but our portfolio companies remained financially solid and performing with no default.

• Rotated some of our holdings in bank financials into high grade oil sovereign names and this strategy proved to be appropriate as such high-quality oil names were among the first sectors to recover after the market sell-off.

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• 2H was stronger than 1H.• Having managed relatively well through the early

volatility, we were well placed to act early in 2H. • A large portion of the equity portfolio was then gradually

wound down from October in preparation for the new fund launch.

Public Equity

Total Value:

HK$1,522.7m10% of Investment Management

+8.7% Annual Return (gain of HK$242.8 m)

Public Credit

Corporate Holdings• The holdings represent a mix of long term strategic

positions and other shorter term positions.

Public Markets

For the year through 31 December 2020Values rounded for simplicity of presentation. Numbers may not foot due to rounding.

Financing Investment Management

2020

(HK$ million)Year End

ValueAverage

Value GainAnnual Return

Equity - 727.4 205.7 28.3%

Credit 141.9 673.9 55.9 8.3%Corporate Holdings 1,380.8 1,376.6 (18.8) -1.4%

Total 1,522.7 2,777.9 242.8 8.7%

Funds Management

Alternatives

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For the year through 31 December 2020Values rounded for simplicity of presentation. Numbers may not foot due to rounding.

PortfolioBreakdown

23.7% return

Direct/Co-Investments

47%

17.4% return

External PE Funds

33%

40.6% return

Hedge Funds

20%

In 2020, distributions increased to HK$2.5 billion, wellabove the full-year 2019 total of HK$745.8 million,which was itself an all-time high.

Made new investments and capital calls for existingfund investments for a total of HK$2.9 billion.

Allocated capital to new and existing fund managers,as well as direct and co-investment opportunitiessourced through the Group’s network.

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(HK$ million) 31 Dec 2020 Value Gain Year

Return^

Hedge Funds 2,149.7 647.3 40.6%

Private Equity: - External PE Funds 3,410.2 468.0 17.4%- Direct/Co-Investments 4,919.3 1,438.4 23.7%

Total 10,479.2 2,553.7 24.7%

Total Value:

HK$10,479.2m72% of Investment Management

24.7% return (gain of HK$2,553.7m)

Financing Investment Management Funds Management

11% 9% 2% 42% 32%4%

Americas Asia Australia China Global UK/US

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AlternativesPrivate Equity and Direct / Co-investments Hedge Funds

27% 29% 13% 8% 8%

4% 3%

8%

Technology Healthcare TMT Financials Consumer Fintech Industrial Others

9% 14% 26% 32% 17%

Global Pan Asia China North America N/A

Values rounded for simplicity of presentation. Numbers may not foot due to rounding.For the period ended 31 December 2020

Private Equity Exposure by Geography

76% 21% 3%

Equity Long Short Arbitrage Credit, CB and ELS

Private Equity Exposure by Sector

External Hedge Funds by Type

External Hedge Funds Exposure by Geography

• Made a number of new investments (revolving around the themes of consumer and enterprise tech, new energy, smart transportation, biotech and med tech globally) in 2020 as we took advantage of market volatility and dislocated markets.

> • Generated 40.6% of return in 2020, materially outperforming benchmark returns (vs Eurekahedge Asian hedge fund index generated +17.5%)

• Overweight allocations to certain regions suchas Greater China added to outperformance.

• All invested managers except for one finishedpositively for the year.

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16% 52% 32%

United Kingdom Hong Kong European Union

Real Assets

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For the year ended 31 December2020Values rounded for simplicity of presentation. Numbers may not foot due to rounding.

• A small loss on the portfolio arising from increased provisions on the office portfolio in Hong Kong.

• In February 2021, the Group entered into a binding agreement to realise its interest in Parmaco (invested alongside two leading London-based investors: Terra Firma and Metric Capital), a Finnish company which specialises in building and renting buildings for schools, day care providers and nursing homes.

29% 7% 61% 3%

Hotels EducationOffice Properties Residential Properties

Exposure by Asset Class Exposure by Country

Total Value:

HK$2,601.5m

18% of Investment Management

-5.6% return (loss of HK$142m)

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Business Review

Funds Management

Funds Management

• Growth in our investment assets to over HK$14.6B and generated consistently strong returns over the past 5 years.

• Built a strong network with the investment community and established SHK & Co. as a proactive, reliable and reputable partner.

• SHK Capital Partners, our funds management vehicle, has received Approval in Principle for Type 1 & 9 licenses by SFC.


• Add additional revenue streams and further diversify our products and strategies.

• Leverage the existing investment management platform, corporate services and marketing capabilities of SHK & Co.

Objective Updates & highlights

Manager Location(s) Type & Strategy Geography Source

East Point Asset Management Hong Kong Equity long/short fund Asia-Pacific Incubated

ActusRay Partners Hong Kong Discretionary probabilistic investing fund Europe Network

E15 VC Hong Kong Venture capital technology fund Global Network

Multiple Capital Investment Partners

Singapore &Australia Real Estate Private Credit Asia-Pacific+ Internal

SHK Capital Partners FoHF Hong Kong Fund of Hedge Funds Global Internal

3 partnerships committed and launched, 2 more coming soon:

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Investment platform and strong financial backing allow options few other platforms can matchFM Collaboration Model Advantages

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Range of Investment Options Flexible Working Capital

• SHK can partner in a variety of ways depending on their readiness to go to market.

• Incubate – For investors without an individual track record, SHK can bring them onto our platform and seed with balance sheet capital.

• Collaborate – For teams ready to market, SHK can provide seed capital and office space.

• Accelerate – For existing managers who have a new strategy or are ready to expand their program.

• Limited Partner – For established managers we can invest alongside other LPs.

• Most new managers and firms face startup challenges.

• The working capital loan gives the manager a longer runway and other LPs certainty of their longevity.

• Using the loan in place of fee income allows manager to focus on investing.

• Frees up more capacity for other investors.

• Warehousing financing can allow managers to secure private deals before fund launch.

• This type of support is uncommon and gives SHK an advantage in attracting good managers.

Flexible collaboration model allows SHK to interface with best talent regardless of stage


Corporate Risk Management

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• Comprehensive risk management framework

• The Board reviews and updates policies and procedures regularly

• Risk Committee oversees risk management

• Internal control and internal audit

• Three stages: risk assessment, risk mitigation and risk monitoring

• A “three lines of defense” framework for managing and identifying risks

• Strong compliance culture

• Consistent training and assessment

• Licensed entities in Hong Kong

• Additional 3rd party compliance consultants

• Strategic and business risks

• Financial risks (market, credit and liquidity risks)

• Operational risks

• COVID-19 coronavirus• Lowering economic

growth of China and Hong Kong

• Tightened regulations by authorities on consumer finance

• Cyber security

RISK MANAGEMENT

PRINCIPLEOur risk management framework is designed to enable us to achieve strong financial performance and deliver our strategy within the Group’s risk appetite, stringent framework and compliance regime

Framework Process Compliance Principal Risks Emerging Risks

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Business Outlook & Future Plans

Business Outlook & Future Plans

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Further develop our alternative investing business model and aim to deliver strong performance over the long term.

Maintain diversified funding sources and liquidity to provide staying power and enable business expansion.

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Actively exploring collaboration and synergies between the 3 businesses.

• Committed to extra diligence and focus across all our investments to carefully manage our risks• Continue to strengthen our investment and operating teams while upgrading systems and infrastructure for the launch

of our Funds Management platform


• Have a strong pipeline of partnerships and fund launches for 2021 covering various strategies including Real Estate Lending, Fund of Hedge Funds, Crypto, Equity Long/Short and Index Arbitrage

Funds Management

Financing• Remain open to new business opportunities and continue our cautious approach to new lending and focus on

monitoring existing loans portfolio• Continue to build the business for further profit and portfolio growth, and continue to invest on infrastructure and

people upgrade

> Deliver consistent dividends and continue share buyback in 2021.

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The images in the presentation feature team Sun Hung Kai Scallywag, Hong Kong’s professional off-shore sailing team. The team competed on behalf of Hong Kong in the renowned Volvo Ocean Race 17-18, one of the toughest sailing challenges in the world. The team spent more than eight months sailing over 45,000 nautical miles across four oceans.

The origin of the team is Scallywag, a 100-foot super maxi race yacht, where the team spirit echoes the Company’s own - Endure. Adapt. Excel.

Investor RelationsEmail: [email protected] : +852 3748 2888

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sun hung kai & co. ltd. 2020 annual results

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