HONG KONG FERRY (HOLDINGS) COMPANY LIMITED (0050.HK)

15 Dec, 2025

Stock Code: 0050.HK

Reference Price: HK$ 4.79 (as of Dec 12, 2025)

Market Capitalization: ~HK$1.706 Billion

1. Executive Summary

1.1 The Investment Thesis: Deep Value in a "Fortress" Balance Sheet

Hong Kong Ferry (Holdings) Company Limited ("HK Ferry" or "the Company") presents a classic deep-value anomaly characteristic of the Hong Kong mid-cap conglomerate space, yet with a distinctively conservative risk profile that makes it uniquely suitable for income-focused investors. As of late 2025, the Company trades at a market capitalization of approximately HK$1.71billion,despiteholdinganetcashposition(includingbankbalances)ofoverHK$2.0 billion as of June 30, 2025. Effectively, the market is assigning a negative enterprise value to the Company’s operating businesses, implying that the ferry operations, property portfolio, and healthcare division are liabilities rather than assets.

For the value investor, this "net-net" style valuation offers an exceptional margin of safety. The core investment thesis rests not on aggressive earnings growth, but on capital preservation, sustainable income distribution, and asset monetization. The Company has maintained a consistent dividend policy (HK$ 0.25 per share annually) despite operational headwinds, supported by a massive hoard of cash and liquid assets. The yield, standing at approximately 5.2% based on the recent closing price, is backed by a balance sheet that could theoretically sustain the payout for decades even in a zero-profit scenario.

The recent strategic pivot to convert the "Symphonie" residential project into a government-subsidized youth hostel ("TN Residence") and the accretive acquisition of retail space in Tsuen Wan demonstrate management’s prudent capital allocation strategy: shifting from one-off development gains to recurring, stable rental yields. This transition significantly de-risks the dividend profile for the medium term.

1.2 Valuation Verdict

This analysis report finds HK Ferry as a significantly undervalued investment opportunity. The stock trades at a Price-to-Book (P/B) ratio of approximately 0.24x against a net asset value (NAV) per share of nearly HK$20.00. While conglomerates in Hong Kong often trade at a discount to NAV (typically 40-50%), a discount of >75% is extreme and unjustifiable given the liquidity of the balance sheet and the absence of debt.

1.3 Dividend Dashboard

The following dashboard summarizes the key metrics determining the safety and sustainability of the dividend for income investors.

Conclusion: HK Ferry represents a sound income stock for conservative investors. The dividend is protected not just by earnings, but by a balance sheet that could sustain payments for decades even in a zero-profit scenario.

2. Industry & Competitive Analysis for Dividend Sustainability

2.1 Industry Dynamics: A Conglomerate in Transition

HK Ferry operates at the intersection of three distinct industries in Hong Kong: Property Investment/Development, Public Transportation, and Healthcare. Understanding the interplay of these sectors is vital for assessing cash flow stability.

Property Investment & Development (The Cash Engine)

The Hong Kong property market has faced significant headwinds due to high US interest rates (pegged to the HKD) and changing consumption patterns, notably cross-border spending in Shenzhen. Residential prices declined ~7.1% in 2024 and continued to soften in 1H 2025. While development profits are lumpy and cyclical, the rental market has shown resilience. The residential rental index rose 1.6% in 1H 2025, driven by talent importation schemes. This dynamic favors landlords over developers in the current cycle. HK Ferry is transitioning from "build-to-sell" (e.g., The Royale) to "hold-for-rent" (e.g., The Symphonie conversion). This reduces lump-sum cash inflows but dramatically improves the visibility and stability of recurring cash flow, a positive shift for dividend investors.

Public Transportation (The Utility Anchor)

The ferry sector is defensive but low-margin, often requiring government subsidies to break even due to high fuel and labor costs. It is not a growth engine. HK Ferry operates the Dangerous Goods Vehicular Ferry Service (North Point - Kwun Tong), a monopoly niche essential for logistics, and the Harbour Cruise - Bauhinia. While the cruise business is cyclical and tourism-dependent (and recently hit by mechanical issues), the vehicular ferry is a stable, utility-like cash generator regulated by the Transport Department. The recent fare increase approved for the vehicular ferry service indicates regulatory support for cost recovery, ensuring this segment remains cash-neutral or slightly positive.

Healthcare & Medical Aesthetic (The Growth Vector)

With an aging population and increasing focus on wellness, this sector offers high growth but high competition and execution risk. Through its "Total HealthCare" and "AMOUR" brands, the Company is diversifying. While revenue is growing (+26% in 1H 2025 for AMOUR), this segment is still in the investment phase and currently dragging on profitability. It represents a "call option" on future growth rather than a current contributor to the dividend.

2.2 Competitive Moats for Cash Generation

For a dividend investor, a "moat" is what protects the payout. HK Ferry’s moats are:

1. Asset Ownership: The Company owns substantial integrated commercial properties (Metro Harbour Plaza, Green Code Plaza) attached to residential estates. These are "neighborhood malls" serving essential needs (supermarkets, dining), making them resilient to economic downturns compared to luxury retail.
2. Regulatory Licenses: The Dangerous Goods Vehicular Ferry license is a niche monopoly. While not a massive profit driver, it provides a floor to maritime revenues.
3. The Capital Moat: The sheer size of the cash pile (HK$2.08 billion) acts as a financial moat. It allows the Company to self-fund acquisitions (like the Tsuen Wan shop purchase) without external debt, insulating the dividend from interest rate spikes.

2.3 Peer Comparison (Dividend Focus)

HK Ferry stands out for its balance sheet strength compared to peers, even if its yield is slightly lower than some distressed developers.

Analysis: Unlike Shun Tak (conglomerate discount) or Link REIT (leveraged yield), HK Ferry offers a unique combination of deep discount (0.24x P/B) and zero leverage. It is a "safety first" play.

3. Company Overview

3.1 Background & History

Established in 1923, Hong Kong Ferry (Holdings) Company Limited has a century-long history in the territory. Originally the primary provider of cross-harbor passenger transport, the Company restructured following the opening of cross-harbor tunnels and the MTR. Today, it is primarily a property investment and development company with legacy maritime operations and a nascent healthcare arm. It is a subsidiary of Henderson Land Development (0012.HK), one of Hong Kong's largest developers, which holds approximately 33.41% interest.

3.2 Business Model & Revenue Streams

The Company’s business model has shifted from operational earnings to asset earnings.

• Property Investment (Recurring): Leasing of commercial arcades (Metro Harbour Plaza, Green Code Plaza) and residential units. This is the primary source of stable cash flow to fund dividends.
• Property Development (Cyclical): Joint ventures (e.g., The Royale in Tuen Mun) and redevelopment (e.g., The Symphonie). Profits are realized upon project completion and sales.
• Maritime (Operational): Dangerous goods transport and harbor cruises. Revenue is ~HK$ 180M annually but margins are thin or negative.
• Healthcare (Growth): Medical aesthetic clinics and specialist centers. Revenue is growing (~HK$ 40M in 2024) but profit contribution is currently negative due to expansion costs.
• Treasury (Financial): With HK$ 2B in cash, interest income is a major "revenue stream," contributing significantly to net profit in a high-interest-rate environment (HK$93.5M in interest income in 2024).

3.3 Operational Footprint

The Company's operations are almost exclusively concentrated in Hong Kong, with a specific focus on Kowloon and the New Territories. Key assets include:

• Metro Harbour Plaza (Tai Kok Tsui): A commercial arcade serving a dense residential area.
• Green Code Plaza (Fanling): A retail podium serving the Northern New Territories.
• The Symphonie (Cheung Sha Wan): A newly redeveloped residential tower converted into a youth hostel.
• The Royale (Tuen Mun): A completed joint-venture residential project.
• Maritime Operations: Based in North Point and Kwun Tong vehicular ferry piers.

This geographic concentration exposes the company to Hong Kong-specific risks but benefits from the city's high population density and land scarcity.

3.4 Dividend History Track Record

HK Ferry has established a track record as a "bond proxy," maintaining a flat dividend payout despite earnings volatility.

5-Year Dividend History:

• 2024: HK$0.25 (Interim $0.10 + Final $0.15)
• 2023: HK$0.25 (Interim $0.10 + Final $0.15)
• 2022: HK$0.25
• 2021: HK$0.25
• 2020: HK$0.25

CAGR (5-Year): 0%.

Interpretation: Management prioritizes stability over growth. The consistency of the HK$ 0.25 payout implies a tacit commitment to this level as a "floor," provided the balance sheet remains strong.

3.5 Insider Alignment

• Henderson Land Influence: Henderson Land Development and its related parties control over 33% of the stock.
• Alignment: As a major shareholder, Henderson Land relies on the dividend stream from HK Ferry. This creates a strong alignment with minority shareholders regarding dividend maintenance.
• Executive Holdings: Dr. Lam Ko Yin, Colin (Chairman) holds 150,000 shares personally, and Mr. Li Ning (Executive Director) has interest in 119M shares via family trusts connected to Henderson Land.
• Implication: The controlling shareholders are "income-focused" owners, reducing the risk of a sudden dividend suspension without cause.

3.6 Tax & Distribution Efficiency

For Hong Kong investors, dividend income is generally tax-free. The Company pays dividends in Hong Kong Dollars, matching the currency of its underlying cash flows (property rental, ferry fares). This eliminates currency risk for local investors. Withholding tax considerations would primarily apply to overseas investors depending on their tax domicile, but for the primary listing jurisdiction, it is a highly tax-efficient income vehicle.

4. Financial Health & Dividend Sustainability Analysis

This section analyzes the "engine room" of the dividend: the financial statements. Data is drawn principally from the FY2024 Annual Report and FY2025 Interim Report.

4.1 Profitability & Earnings Quality

Revenue Trend:

Revenue in FY2024 stood at HK$ 423M (+12.8% YoY), but 1H 2025 saw a decline to HK$ 199M (-5% YoY). The decline in 1H 2025 was driven by lower maritime revenue (engine damage to a cruise vessel). This volatility highlights the operational risks in the non-property segments, although the absolute impact on the group is cushioned by interest income.

Earnings Composition:

In 1H 2025, Profit Attributable to Shareholders was HK$ 122M (+36%), but this figure is distorted by **fair value gains on investment properties** of HK$ 51.9M. These are non-cash gains. Excluding fair value changes, the underlying profit for 1H 2025 was HK$ 69M, a 19% decrease year-on-year. This trend warrants caution; the operational engine is sputtering slightly, increasing reliance on the investment portfolio.

Payout Ratios:

• FY2024 Reported Earnings Payout: HK$ 0.25 DPS / HK$ 0.46 EPS = 54%.
• 1H 2025 Interim Payout: HK$ 0.10 DPS / HK$ 0.34 EPS = 29%.
• Cash Payout Ratio: With Operating Cash Flow (OCF) fluctuating, the dividend is often funded by the massive cash reserves rather than current year OCF. This is sustainable given the size of the reserves, but technically represents a return of capital rather than a return on capital in weaker years.

4.2 Balance Sheet Strength: The "Fortress"

This is the single strongest argument for HK Ferry as an income stock.

• Total Assets (June 2025): HK$ 7.6 billion.
• Total Liabilities (June 2025): HK$ 0.5 billion.
• Shareholders' Equity: HK$ 7.14 billion.
• Cash & Bank Balances: HK$ 2.08 billion.
• Borrowings: Zero. The Company has no bank debt.
• Net Cash Per Share: HK$ 2.08B / 356M shares = HK$ 5.84 per share.
• Implication: The stock is trading at HK$ 4.79 (user input), which is ~18% below the value of its net cash alone. Investors are effectively getting the property portfolio, ferry business, and healthcare division for free, plus a discount on the cash.

4.3 Capital Preservation Analysis

• Tangible Book Value: Since the Company has minimal intangible assets, the Book Value per Share is approximately HK$19.80-HK$20.04 (based on Dec 2024 and June 2025 equity).
• Net Current Asset Value (NCAV): (Current Assets 2.33B - Total Liabilities 0.5B) / 356M Shares = HK$ 5.14 per share. The stock trades below its NCAV, a classic Benjamin Graham value signal indicating extreme undervaluation.
• Liquidity: Current Ratio is 5.9x (June 2025), down from 17.0x (Dec 2024). The drop is technical, likely due to the reclassification or utilization of funds for the dividend and potential capex allocation, but 5.9x is still extraordinarily liquid.

4.4 Cash Flow Analysis & Dividend Coverage

• Operating Cash Flow (OCF): In 1H 2025, net cash generated from operating activities was only HK$ 8.9M. This is low compared to the dividend.
• Investing Cash Flow (ICF): The company received significant inflows from interest income (HK$ 45M in 1H 2025) and repayments from joint ventures.
• The "Real" Coverage: Dividend payments (HK$ 89M annually) are funded by a mix of:
  1. Property Rental Income (recurring).
  2. Interest Income (recurring but variable).
  3. Cash reserves (if earnings fall short).
• Sustainability Check: Even if the company made zero profit, the HK$ 2.08 billion cash pile alone could fund the HK$ 89M annual dividend for 23 years. This provides an unparalleled safety net for the dividend.

4.5 Recent Material Developments: Capital Deployment

The Company is actively deploying its massive cash pile to generate higher recurring yields, which is positive for dividend sustainability.

1. The Symphonie Conversion (TN Residence): Instead of selling units in a weak market, HKF converted this Cheung Sha Wan project into a youth hostel. Rental income commenced in June 2025. This converts inventory into a long-term investment property, smoothing cash flow.
2. Tai Hung Fai (Tsuen Wan) Acquisition:
   • Cost: HK$ 260 million (paid from internal cash).
   • Asset: Retail shops, GFA 12,720 sq. ft.
   • Economics: Monthly rental ~HK$ 1.22M (gross). Annualized yield ~5.6%.
   • Impact: This acquisition replaces cash earning ~3-4% bank interest with a property earning ~5.6% rental yield, plus potential capital appreciation. It is immediately accretive to earnings and supports the dividend.

4.6 Dividend Safety Scoring & Covenant Analysis

Covenant Stress-Test:

Since the company has zero debt, there are no financial covenants to breach. This is a critical distinction from peers like Link REIT or New World Development, where asset write-downs can trigger covenant breaches. HK Ferry could theoretically withstand a 100% write-down of its investment properties without triggering a liquidity crisis, as it holds no loans secured against them. A hypothetical stress test assuming a leverage increase to 20% (HK$1.4Bdebt)at5$70M annual interest expense. Given current EBITDA (approx HK$250M), interest coverage would remain healthy at >3.5x.

5. Valuation Assessment from a Dividend Investor's Lens

5.1 Dividend Discount Model (DDM) Analysis

Given the stable dividend history and lack of growth, a DDM is appropriate.

• Risk-Free Rate (Rf): 10-Year HK Gov Bond Yield ~3.0% (Proxy).
• Market Risk Premium: 5.5%.
• Beta: 0.6 (Defensive stock).
• Cost of Equity (Ke): $$\begin{gathered} 3.0+(0.6 \\ times5.5)=6.3 \end{gathered}$$.

Scenarios:

1. Bear Case (Dividend Cut): DPS cut to HK$0.20 due to falling interest income. Zero growth.
   • Value = $0.20/0.063=HK$ 3.17.
2. Base Case (Maintenance): DPS maintained at HK$0.25 forever.
   • Value = $0.25/0.063=HK$3.97.
   • Note: This theoretical value is below the current price ($4.79)becauseDDMignorestheHK$5.84 per share in cash on the books. DDM fails to capture the asset value.
3. Bull Case (Asset Realization):
   • Cash per share: HK$5.84
   • Properties/Ops: Valued conservatively at 50% discount to book.
   • Intrinsic Value: >HK$10.00.

5.2 Relative Valuation (Dividend Perspective)

• P/B Ratio: HK Ferry trades at 0.24x Book Value.
• Peer Average: 0.4x - 0.6x for conglomerates.
• Historical Average: HKF typically trades at 0.35x - 0.45x.
• Yield Gap: Current Yield (5.2%) vs HK Gov Bond (~3.0%). Spread is ~220bps, offering decent compensation for equity risk.
• Yield-on-Cost Benchmarking: Assuming a 0% dividend growth rate, the yield-on-cost remains 5.2% over 5 years. While this lags "Dividend Aristocrats" that grow payouts, the starting capital base is so undervalued that the total return potential via repricing is higher.

5.3 Margin of Safety Estimate

We estimate Fair Value at HK$7.00-HK$8.00, based on a conservative 60% discount to NAV (to account for the conglomerate structure and holding company status).

• Current Price: HK$4.79.
• Margin of Safety: ~30-40%.
• Hard Floor: The net cash per share of HK$5.84 acts as a "hard floor." It is extremely rare for a solvent company to trade significantly below its net cash value for extended periods without a privatization attempt or a special dividend catalyst.

6. Investment Outlook: Total Return Projection

6.1 Dividend Sustainability Outlook (3-5 Years)

• Likelihood of Maintenance: High (80-90%). The acquisition of the Tsuen Wan property indicates management is actively replacing interest income with rental income to sustain cash flow. The massive cash buffer allows them to smooth over any operational dips.
• Likelihood of Growth: Low. Unless the medical business turns a significant profit or a massive redevelopment project succeeds, the dividend is likely to remain capped at HK$0.25.
• Likelihood of Cut: Low. Only a catastrophic collapse in the HK property market or a change in control would necessitate a cut.

6.2 Total Return Expectation

• Yield Component: 5.2% per annum.
• Capital Appreciation: Potential for re-rating from 0.24x P/B to 0.30x P/B as interest rates fall and property yields become more attractive. This would imply a price target of ~HK$6.00 (+25%).
• Annualized Total Return Forecast: 8% - 10% (conservative estimate).

7. Comprehensive Risk Assessment

7.1 Risks to Dividend Payments

1. Falling Interest Rates (Transition Risk): HKF earned HK$ 93M from interest in 2024. If rates drop significantly, this "free" profit evaporates. Management must successfully execute the property acquisition strategy to replace this income.
2. Healthcare Execution Risk: The medical aesthetic sector is fierce. If the "Total HealthCare" division continues to bleed cash without scaling, it becomes a permanent drag on the P&L.
3. Governance / "Value Trap" Risk: Henderson Land may be content to let HK Ferry drift as a sleepy cash cow. If the cash is never distributed (via special dividends) or used effectively, the stock remains a "value trap" trading at a huge discount.

7.2 Dividend Cut Probability Matrix

7.3 Capital Preservation Stress Test

Scenario: Stock price falls to HK$3.50(MarketCapHK$ 1.25B).

Reality Check: At HK$3.50, the market cap would be roughly half of the cash on hand. This would invite activist investors or privatization attempts.

Conclusion: The downside risk is strictly limited by the liquidity on the balance sheet. The stock has a "cash floor."

7.4 Downside Scenario & Yield Analysis

In a severe downside scenario where the stock trades at 0.15x Book Value (approx HK$ 3.00), the dividend yield would rise to 8.3%. Given that the company has no debt service obligations to prioritize over dividends, it could easily afford to maintain this payout to support the share price. This creates a reflexive floor: as the price drops, the yield becomes irresistibly attractive to yield-hungry investors, stabilizing the price.

8. Conclusion

HK Ferry (0050.HK) is a textbook "deep value" defensive play. While it lacks the excitement of high-growth tech or the high yields of distressed Chinese developers, it offers something rarer: security.

8.2 Dividend Durability Rating: Tier 1 (Fortress Dividend)

• Justification: The Company holds more cash than its entire market value. It has zero debt. It owns income-generating real estate. Even if operations break even, the dividend can be sustained for 20+ years from reserves.

8.3 Suitability for the Value Investor

• Does it fit the profile? Yes. It is an asset play trading at >75% discount to NAV and <1.0x Net Cash.
• Is the dividend well-covered? Earnings coverage is moderate, but balance sheet coverage is absolute.
• Capital Preservation Verdict: Strong. The margin of safety is massive. The tangible assets provide downside protection of approximately HK$20 per share, representing ~300% coverage of the current price.

At the current price levels (HK$4.70-HK$4.80), HKF can be viewed as a substitute for a corporate bond or a high-yield savings account, with the added "free option" of capital appreciation if the property market recovers or if Henderson Land decides to privatize the entity at a premium to unlock the trapped cash. Monitor the integration of the Tsuen Wan acquisition and the profitability of the medical division as key performance indicators.

Disclaimer

This article is a record of the thinking behind a personal investment decision. It does not represent any recommendation to purchase any stock mentioned in the article. As always, readers are strongly advised to do their own due diligence before making any investment decisions.

#HK Ferry #HK Landlords