"Big Banks" UBS: Wharf's performance last year met expectations, upgraded to Hold with net cash

UBS stated that Wharf Holdings (00004.HK) recorded a basic profit of HKD 4.1 billion for the fiscal year 2025, an increase of 47% year-on-year, which is roughly in line with UBS's expectations. The profit growth was mainly due to a reduction in impairment provisions related to properties developed in mainland China to HKD 800 million (FY 2024: HKD 2 billion). By the end of 2025, Wharf had turned to hold a net cash of HKD 2 billion after realizing profits of HKD 9.7 billion from its equity investment portfolio, compared to a net debt of HKD 7 billion in FY 2024. After the sale, the value of the equity investment portfolio remained flat year-on-year at HKD 43.2 billion. The company announced that it would maintain the second interim dividend at HKD 0.2 per share, bringing the total annual dividend to HKD 0.4 per share, which implies a payout ratio of 30% (FY 2024: 44%). At the earnings briefing, management expressed optimism about the luxury residential market in Hong Kong and expected the recent increase in luxury property stamp duty to have limited negative impact. Wharf plans to launch the Longtingli No. 8 project for sale in 2026. As for properties developed in mainland China, management pointed out that despite the low average selling price, sales of inventory, mainly consisting of office buildings, are challenging due to a weak market.

UBS has given Wharf a "Sell" rating with a target price of HKD 16.3